No chance Japan will adopt 'helicopter money,' say officials

I pray for ¥200 to $1.00

@sangetsu03.... you have no clue.... anytime you create more and more debt and issue currency against it, under normal circumstances, the currency would weaken. The Yen has continued to stay strong. Think.... the govt could just issue more debt, have the BoJ buy it, then issue more currency and actually buy physical gold with the newly printed Yen. As good as gold. Why, because the government will never buy back all of the debt it has issued.... and if it tried, it might take more than 200 years to do it. Face it, Japan's debt will continue to grow.... why not just issue more Yen now while it is still strong and use it to buy Tangible Assets and Commodities. And the good thing is.... if they do try to do that... Abe will definitely get what he wants.... a much weaker Yen and inflation.

Japan's debt is domestic.... it is insulated from negative speculation, which makes it as good as gold.

The yen is not as insulated as you think. As a country with no natural resources, which relies heavily on energy, food, and materials imports, the yen is very much subject to the whims of the marketplace. Only in the days before the Plaza Accord, when Japan was able to manipulate the yen at will, was it resistant to market speculation.

Japan's debt is certainly not "as good as gold", because if such were the case, the government would not be forced to be the main buyer of that debt. Japan's domestic institutional investors would be scooping up all they could get. But in fact, they have been doing the opposite, and shedding their holdings of JGB's.

The problem with domestically-held debts is that as they are not subject to market expectations. When the market buys debt, it considers existing debt, the condition of the national economy, and the ability to repay that debt. The bond rates reflect the amount of risk the market sees. Since Japan has kept it's debt out of the international market place, it has been able to keep rates low, and this has encouraged the government to borrow and spend more than it safely should. Had Japan's debt been traded on the open market, there is no way they would have been able to acquire a debt which is 250% of GDP.

There has also been talk, and act, from time to time of distributing directlty to the populace. http://www.japantoday.com/category/business/view/govt-weighs-shopping-vouchers-promotions-to-boost-consumption#comment_2185986

There is also a strange simiarity between "helicopter money" and "fuda-ori" the periodic Edo belief that Ise's sacred amulets were falling from the sky which lead to the millenial "Anything Goes!" (eejanaika) dance-pilgrimage movement and lead in part to the overthrow of the goverment. In the case of fuda-ori, enterprising priestly-tour-guides blew the amulets onto rooves of house, and folks were said to have brought out their old amulets and scattered them. Since the rest of the populace went wild and came to Ise en mass, sing and dancing, with most of then ending up buying amulets, this was a rare example of Keynsianism working.

Japan isn't doing great, but it's doing better than most.

Japan has been in recession more or less since 1991. Since 1995, Japan has embarked on 17 stimulus programs. It has used pubic money to keep it's private sector afloat, and this is the primary reason why Japan has the largest national debt of any devoted country. Japan is not "doing better than most", it is paying for it's present prosperity at the expensive of future taxpayers, whose bill continues to increase at a rapid rate. Worse, due to rapid population decline, this poor group of taxpayers who is going to get stuck with the bill will be much smaller than the current group. Japan has been living like an unemployed person paying his bills with his credit cards, transferring the balance from card to card. But eventually a limit will be reached, and the bills will come due.

The fundamental symbol of a county's economic well being is the growth of it's population. How is Japan's population doing?

I do not take seriously any talk about Yen,not based on Technical analysis.What i said before was ,all-based on technical analysis,proved to be true.Its also well known that every up should have down,Yen will rebound at certain point-not so far from bottom made after Brexit- goes down against dollar again,which i suppose to be in a short term.What goes on now, mere speculations,but also shown in technical analysis,nothing randomly.I dont know what Gary Raynor reasons or evidences behind his expectations-he didnt tell-but it doesnt seem to me technically.Anyway strong selling signals already been shown,I posted after LDP won elections,aking to keep eyes on Yen and Nikei,there will be good gains,but yen wont be able to continue.Dow Jones achieved historical levels now after breaking a very hard level of 18ooo,which failed to break dozen of times.I believe will continue especially with approaching of American presidency election and biggest possibility for Hillary to win.

What I'm amused at the most is is the number of you that think further fiddling with the economy and monetary policy will make a difference. As I wrote earlier.... print the heck out of the Yen, then buy dollars with it. After that buy every decent U.S. or other company that pays a decent dividend. Japan's debt is domestic.... it is insulated from negative speculation, which makes it as good as gold. Print the gold and buy up everything worth anything. Stay away from buying ownership in any country that would dispute ownership itself. This is the bottom line... it is the end all way to devalue the Yen. Think of the consequences of such a move. And if the rest of the world still wants to protect their currencies and keep the yen strong.... then thank them.... because you will own them.... just don't sell once you've bought them.

Gary Raynor

Is what are you telling about Yen,is mere expectation or prediction,or based on technical analysis?i expect yen to go below 100 yen against dollar,around 95 against dollar,but i cant tell now if it will go farer,we are waiting for government meeting and BOJ in coming days.

"Corporate profits in Japan declined in the January-March quarter of 2016"

Yes, while coming off record highs, achieved a couple of years after Abenomics launched. What's more global profits and growth were down during the period you cited, due to the slowdowns in China and other emerging economics. So ya can't blame Abenomics on that. Learn to interpret stats better.

http://www.tradingeconomics.com/japan/corporate-profits

If you want to see "failures," you'll find clear examples in the Eurozone, Russia, Brazil and many other major economies. Japan isn't doing great, but it's doing better than most.

Tokyo real estate has been going up 15-20%pa for last three years and looks to be accelerating

What has happened to real estate outside Tokyo? Tokyo is a big city, but the majority of Japanese don't live there. There are 8 million empty homes around Japan which cannot be filled or sold, because there are more homes than there are buyers. Tokyo might be immune to falling real estate prices, but the 95% of Japan which exists outside Tokyo is not.

Tokyo real estate has been going up 15-20%pa for last three years and looks to be accelerating

Then you would be wrong.

Really? The goal of Abenomics were to cause economic growth and create a "price stability goal" (inflation rate) of 2%. Minus pubic sector spending, there has been no net growth whatsoever. And we all know that the economy remains stagnant, if not deflationary. These two goals have not been met, therefore, Abenomics has failed, right?

Employment: Up, beyond full employment levels

Yes, if you consider being "full employment" being made up of more part-time, minimum-wage jobs, with no benefits, and a record low number of full-time, permanent jobs.

Wages: up over 30%

Anyone around here (other than Carlos Ghosn) seen your wages increase by 30%? if so, please raise your hand. Toyota raised worker's pay by 2700 yen per month, which is an average of 0.8%

Stock market: up 20%

But down much more than that compared to the highs of 2015. And as we all know, GDP growth has been essentially nil, so how does the stock market go up when there are not more earnings, profits, or growth? The market goes up because all that money the BOJ has printed has been borrowed at low rates, and used to buy stocks, pumping up the market. And this is why central bank policy now has far more effect on stock prices than the performance of the companies which issue stock.

Corporate profits: nearly doubled (all time record)

Subtract stock gains, as much of the earnings these companies made were the result of issuing debt to buy stocks, pumping up their prices. It is like borrowing money from the bank, and considering that income rather than debt it is. The companies bought up all this stock betting that Abe would deregulate the economy, which might have encouraged growth. But as well all know, Abe lost his third arrow, and now these companies are all dressed up with nowhere to go.

Foreign tourists: nearly triple

This is the only bright side to the picture. Cheap oil means cheap air travel, cheap yen means cheaper hotels and shopping. But Japan's economy is not tourism-based, and the entire country of Japan sees less visitors than the city of Miami receives in a year, not to mention cities like Paris or London.

Why do you think Abe is trying to digitize the currency and get everybody on a suica card and a waon card. This way they can control the yen implosion. However the older generation who can't handle more tech than a fax machine stand in the way. My kids school doesn't even have a homepage where you can see events or schedules or emergency info and they want virtual currency, good luck.

One of the ridiculous things that some people think today is that getting more business investment just requires lower interest rates.

Businesses can't suddenly navigate through excessive regulatory burdens and challenge vested interests just because an interest rate has been pushed lower. Without new businesses there are no good new jobs, and new good new products. No good new products means people are left to throw their money at the same old products, which they already own.

Helicopter money and other variants are all just more of the same stupidity that hasn't turned things around already.

JeffLeeJul. 16, 2016 - 11:33AM JST

Corporate profits: nearly doubled (all time record)

Really!!!

Corporate profits in Japan declined in the January-March quarter of 2016, current profits declined by 6.8% quarter on quarter to 15.85 trillion yen.

Current profits have declined for the past three consecutive quarters, by 16% accumulatively.

By sector, both manufacturers and non-manufacturers suffered significant declines in their profits in the January-March quarter. Manufacturers' current profit declined by 8.0% quarter on quarter. Non-manufacturers' declined by 6.2% quarter on quarter

The Nikkei 225 peaked in August 2015 at exactly the same time the yen devalued most. Since then the NIkkei is down 4000 pts, 20% and the yen strengthen by 20% . Wages are flat or declining, food prices have surged, fuel price is not getting any benefit of the strengthening yen. 3-5% of the population that own stocks have benefitted , but the masses haven't, face it japanese don't complain much, but they will when the time comes. Consumer spending on services is what drives our "modern" economies and everybody is cutting back on shopping and starbucks, cept maybe the tokyo, nagoya, osaka corridor. That 50% of the economy cannot drive 100% of the economy.

Danalawton1 is righton btw

Helicopter money vs current policy is a distinction without a difference.

As for perpetual notes, take a look in your wallet. What do you think is in there?

and general ignorance about the real fiscal intent of the LDP, who don't have a hope in hell of running a balanced budget. name me one first world economy that does have a chance of balancing their budget, or ideally bringing in more revenue than they spend, certainly isn't going to the US anytime soon. But hey if you've got tools like QQE or "Helicopter money" made infamous by the Feds why would you need to?

It is beyond me how governments the world over seem to think they can defy the laws of fiscal gravity.

It works until it doesn't. People don't realize that it can take years for the full effect of monetary or tax policies to be felt in the economy. Many a president has taken credit for a strong economy which actually the result of the polices of his predecessor, and, likewise, many a president has presided over a terrible economy which was largely the result of the policies of his predecessor.

The currency values of western nations are as much supported by faith of the people as they are the policies of the central banks. Central banks can try to manipulate the values of their currencies, but the real value is still chiefly controlled by those who earn and spend these currencies. If central banks are not careful, the people eventually lose faith in their currency, causing it to fall in value, and potentially much more than the 2% central banks hoped for.

We have already seen the inflationary results of monetary easing, one need only look at stock prices. But the trickle-down effect from Wall Street to Main Street takes time. Eventually, inflation will be felt by the entire economy, the only question is how much?

@Gary Raynor

"I predicted it 4 years ago....that Abenomics would fail."

Then you would be wrong.

Employment: Up, beyond full employment levels

Wages: up over 30%

Stock market: up 20%

Corporate profits: nearly doubled (all time record)

Foreign tourists: nearly triple

The weak points are GDP growth, capex and consumption. So mixed is the correct answer. And the drag has been caused by the things I warned against: higher taxes and over "fiscal consolidation" moves, which were not in the Abenomics agenda.

But ever looked at the Eurozone's numbers? Japan has been well outperforming the free-trade, single-currency EU, and that's with a shrinking workforce.

Average Eurozone growth over the past 20 years: 0.36%. Japan is much better off.

a central bank who accepts [implements] a helicopter money policy is buying government bonds in exchange for currency, that the government gives directly to the general policy [population], that will never be called in and therefore be in a condition of perpetuity or permanence.

@Gary

I stand by what I wrote, with one correction, a helicopter drop could involve the BOJ using the mechanisms you describe, with the government borrowing money from the BOJ and turning around and putting it directly into citizens' pockets. (But in that case the government would be obligated to repay the borrowings at some point, making this creation of new money "temporary." If the BOJ-government arrangement involved perpetual bonds, then the government would be obligated to pay a coupon against the borrowings forever.)

Alternatively, a helicopter drop could involve leaving the government out of the picture, with the BOJ giving vouchers directly to citizens (no need to buy government bonds). This sort of creation of new money would be "permanent" in that the money created is not provided as loans, so there is never any repayment to the BOJ. So in this scenario, there is no "indefinite financing of fiscal spending" and no "perpetual bonds."

Also, QE redistributes wealth to the 1% (makes the rich richer), but helicopter money redistributes wealth to the lower and middle classes.

QE is theoretically a trickle down approach, which has yet to work as theorized — the BOJ prints money > BOJ buys government bonds with it > interest rates fall > the wealthy use the cheap borrowings to create new jobs > citizens earn more money and spend it > overall consumer spending and inflation rise.

A helicopter drop is different in that the money goes directly into the hands of citizens who spend it.

It seems to me that indefinite quantitative easing is much the same as 'helocoptering' in money into the economy.

MichaelBukakis is right - helicopter money is already here. It is beyond me how governments the world over seem to think they can defy the laws of fiscal gravity. You cannot fake a healthy economy laden by unsustainable government spending. Socialist governments for 80 years have tried and it always ends up the same. The sad truth is that people are incapable of seeing the reality of their delusions until it is forced upon them. Gary Raynor believes it could be as soon as February next year. That's a bold prediction. The reckoning will come when it comes for Japan as it will for the US and many other heavily leveraged Western economies.

Sensato,

You need to do a bit of reading. Helicopter money is exactly that. As Milton said, the guy who drops his 100 dollar bills from the helicopter onto the general populace, does not expect a single note to be returned, a central bank who accepts a helicopter money policy is buying government bonds in exchange for currency, that the government gives directly to the general policy, that will never be called in and therefore be in a condition of perpetuity or permanence.

As other have noted the BOJ is indirectly actually practicing helicopter money by buying JGBs that will never be cashed in because the Japanese government would have to default.

The problem is, and Jefflee fails to comprehend this, is Yen debt is not just a private affair between the BOJ and the Japanese government. A lot of other people and institutions, outside Japan, hold Yen and if they deem it as worthless, then they'll get rid off it as quickly as possible, at any price.

The only thing stopping Japan being the next Zimbabwe is Japan's current account surplus which will inevitably disappear as the Dankai spend their savings, and general ignorance about the real fiscal intent of the LDP, who don't have a hope in hell of running a balanced budget.

“helicopter money,” a policy in which the central bank indefinitely finances fiscal spending through perpetual bonds

Helicopter money is not "a policy in which the central bank indefinitely finances fiscal spending through perpetual bonds," as this article claims.

According to Investopedia, helicopter money (a helicopter drop) is an "unconventional tool of monetary policy that involves printing large sums of money and distributing it to the public in order to stimulate the economy."

So, helicopter money can be as short or long term as the central bank deems appropriate (so not "indefinitely"). Also, it does not involve bonds, nor does it involve financing fiscal spending (ie. "printing" money and giving it to the government). Instead, it involves the central bank (Bank of Japan in this case) creating new money and putting it in the hands of the citizens/residents of Japan who are most likely to spend, thereby fueling economic activity and spurring a measure of inflation.

You kidding... if I were head the MoF, I'd print about a Trillion Dollars worth of Yen, I would then buy U.S. Dollars and buy up about 10% of every viable U.S. Company that pays a decent dividend. If the rest of the world is looking the other way while japan prints money, and the Yen continues to be strong despite this, then call their bluff. At some point the rest of the world will wake up and realize what Japan is doing and quickly devalue the Yen. But at that point Japan will have transferred Billions of Dollars worth of U.S. Stock holdings to its National Pension Fund. The BoJ is floating the printed money.... so just have them forgive the debt. Think.... suppose some small country with 5 million people just printed money and more money.... and despite that, their currency did not drop vs the dollar. Just buy tons of dollars and invest it. Normally though, the currency would quickly become worth dirt and the currency would not be worth the paper it is printed on.... but that is not what is happening with the Yen. It has the highest per capita debt ratio in the world and despite this.... its still trading at around 100 to the dollar. Again, if I were in charge, I'd helicopter the heck out of it.

Jeff, you wouldn't accept a risk until it smacks you in the face, which is when it is too late.

While you were confident that Abenomics would be a success. It isn't February 2017 yet but I'd safely say that the second prediction of Abenomics failing has been proven to be right, neh?

But then he would say "But Abebomics would have worked had it not been for the increase in the consumption tax." and that overlooks the fact that had Abenomics had caused 2% inflation as planned, the net effect would have been the same, because inflation is a tax. By the underlying logic of Abenomics, the increase in the tax and devaluing the yen should have had the same effect, to increase the cost of goods, causing the inflation Abe and the central bank wanted. But instead of paying more for goods, the Japanese people simply spent less, and the net effect turned out to be the opposite of what was intended.

JeffLeeJul. 16, 2016 - 08:52AM JST

Didnt your mates say something about the yen going to 200 to 300? Hyper inflation? Rocketing interest rates?. Your ilk has been beyond wrong in all your past warnings, with real trends moving in direct opposite direction. LOL. .

I Keep writing it JeffLee, can't you read?

One more time... February 2017 was the earliest prediction, mine, for the Yen crash, when all the savings of the Japanese populace will be equal to Japanese government debt.

I predicted it 4 years ago and predicted along with others, SmithinJapan and Globalwatcher, that Abenomics would fail because it was the usual LDP pig of currency manipulation and pork barreling, with a different lipstick.

While you were confident that Abenomics would be a success. It isn't February 2017 yet but I'd safely say that the second prediction of Abenomics failing has been proven to be right, neh?

What a joke, helicopter money is already here, these articles are to calm the steeple so that they don't understand it and pull ALL their money out of the already zombified banks, thus causing a total liquidity freeze-up. 40 billion USD is printed per month by Abe just to cover the tax shortfall so that the guv can pay its bills, but they want US to turn down the aircon or lower the heat! What a load of junk. Yes the yen will implode Zimbabwe style, it must as tax revenue does not equal spending and the excess printed money has to go somewhere. It will come home to roost eventually, that is the point, eventually. Look at all the stimulus, giving retirees direct deposits= helicopter money, "premium coupons" where you buy coupons at the city hall with cash for 100,000 yen but they give you 120,000 in coupons good at local businesses=helicopter money, wake up people, it's here already, look at the gold price in yen.

“Obviously this official hasn't been listening to our JeffLee."

Who is the money paid back to? And where does that money come from?

As the article says, Japan is already doing a quasi helicopter money program. Tell me specifically the risks so far. (speculation, predictions dont count).

Didnt your mates say something about the yen going to 200 to 300? Hyper inflation? Rocketing interest rates?. Your ilk has been beyond wrong in all your past warnings, with real trends moving in direct opposite direction. LOL. .

All it means is more debt and printing money.

“It’s an illusion to think that a country can spend as much money as it wants, without having to pay it back,” said another official on condition of anonymity.

Obviously this official hasn't been listening to our JeffLee.