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BOJ, gov't set 2% inflation target, media report

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Abe wants 2% inflation. Just hope he doesn't end up getting hyperinflation. Things are already expensive enough here in Japan ... especially in the big cities. All his talk about promoting inflation makes me wonder if we all are going to have to tighten up our purse strings even more.

Hope Abe and his financial cohorts know what they are doing ...

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hey....the people wanted the LDP back....reap what you sow....

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edojinJan. 14, 2013 - 03:15PM JST

Hope Abe and his financial cohorts know what they are doing ...

Of course they don't and this brings us ever closer to a JGB default, which I think Abe and MOF are aiming for. Wipe the slate clean, and all the savings of the Japanese people with it, and start all over again. A repeat of 1946-48.

A few sentences about the unique mysticism of the Japanese and the distrustful banking ways of the gaikokujin, and the Japanese will be pouring their money into a new round of JGBs.

Luckily 4 years ago I took everything, except for a couple of million, out Yen. I'm laughing, I made an extra 40% on my New Zealand investments, in terms of Yen, and might just bring them back to Japan and buy that nice farm in Hokkaido I've had my eyes on. I couldn't buy a parking space in Auckland for the same money.

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Inflation is not natural in a declining population. In a declining populating, anything other than deflation is a sign of an unhealthy economy.

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Luckily 4 years ago I took everything, except for a couple of million, out Yen. I'm laughing,

Dog Me too. I have pulled some from Japan and invested in Aussie since 10 years ago as I already have a single house in Tokyo and here in US.

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sengoku38Jan. 14, 2013 - 03:40PM JST

Inflation is not natural in a declining population. In a declining populating, anything other than deflation is a sign of an unhealthy economy.

Well said and thus my nicely valued Hokkaido farm.

This obvious point seems so lost with Abenomics. Of course the weakening Yen will create inflation, but this will be price inflation on foodstuffs and fuel, hardly something that people lay off buying because they might be cheaper next week, and will dampen domestic demand for other domestically manufactured products.

Abe's economics are totally skewered.

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globalwatcherJan. 14, 2013 - 03:58PM JST

Dog Me too. I have pulled some from Japan and invested in Aussie since 10 years ago.

You've made more than me with the Aussie dollar. Well here's to the downfall of Abe and his policies, another collapse of the carry trade and because Japan is still the world's leading creditor another brief, very brief, strengthening of the Yen and we can do it all over again.

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Dog, too bad this is a public website. You and I share the same view on economics, so we certainly will agree how we will play in this opportunity. Abe's policies will not work.

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Dog and Globalwatcher, you have another reader in agreement with you. It baffles me how Abe thinks that even 2% inflation is anything other than a slow-motion disaster for a nation of prudent, diligent, conservative savers who hove done just fine historically with such attitudes. Being one such saver myself, it's almost physically painful to watch the value of my savings decrease almost day by day.

What bothers me even more is the media's knee-jerk regurgitation of government propaganda regarding deflation. "Deflation ... encourages consumers to put off making purchases in the hope of paying less further down the road." What nonsense! This simplistic view ignores the value (utility) of having something now rather than later; nobody puts off purchases of electronics -- one industry where prices drop most rapidly -- unless they know something better and cheaper is right around the corner. For most products, when people see a low price, they buy more of it. Or they treat themselves to something else. Just watch as all those casual purchases and impulse purchases dry up when prices start increasing. I shudder to think of what kind of consumption tax the government will then be demanding, in an era of an inflatino-driven decrease in consumption!

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2% inflation is a very normal target to shoot for, and Abe is keen to have the Bank of Japan become more adventurous with it quantitative easing measures, something they have been decidedly reticent to do in recent times.

If they achieve that, Japan also has plenty of room to move with it's consumption tax - 8% is around half the OECD average and I'd say it's not a matter of if they will raise it further, but when. A quick wander around any department store in japan shows you that people are not afraid of spending in this country.

A strong Yen is bad for domestic Japanese companies so it's almost inevitable they will try to weaken it. This government needs to lead with the reforms needed to kick start the economy again - and there are plenty of ways they can do it.

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If his plan does not work Japan is in big trouble. Artificially jacking up inflation, unlimited buying of debt, keeping companies strong without actually fixing the actual balance sheet and company efficiency. Isn`t this what Koizumi was trying to get rid of for 8 years? This seems like a way to the path of Greece. What happens when Japans credit rating gets cut, then it will need to pay more for the debt and could snowball out of control. This seems to be totally fiscally irresponsible.

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Abe wants 2% inflation. Just hope he doesn't end up getting hyperinflation. Things are already expensive enough here in Japan ... especially in the big cities. All his talk about promoting inflation makes me wonder if we all are going to have to tighten up our purse strings even more.

There will be no hyperinflation. There has NEVER been a case of hyperinflation in a country in history that hasn't been preceded by a collapse in the real economy, in the quantity of goods and services available on the market. In post-WWI Germany, hyperinflation came as war reparations and the French occupation of the Ruhr drained the German economy of industrial goods and basic resources. In WWII Hungary, the invading Red Army disrupted the economy as it progressed to the capital. In Zimbabwe, hyperinflation followed the collapse of agriculture (the country's main economic sector) after ill-advised farming reforms (taking land from white farmers who knew what they were doing and giving it to black unemployed people who didn't know much if at all about farming).

Inflation is basically composed of two major phenomena.

Inflation occurs when there is more money around in consumers' pockets. As consumers have more money, they try to buy more stuff, but if there isn't enough stuff to buy, then the price of everything increases. This is the way the Central Bank can influence inflation.

Inflation also occurs when there is a collapse in certain essential goods (like oil for example) or in all goods. As the amount of goods available to buy is reduced, you end up in a situation of shortage, which in a market economy is dealt with as sellers increase the price of their products, reducing the amount people are willing to buy. On this phenomenon, the Central Bank doesn't have much influence, these are real economic shocks.

Hyperinflation occurs when the second phenomenon occurs and money is printed to try to "compensate". But since the problem is physical (not enough goods to go around), printing money can't compensate, and it just creates a inflationary spiral.

We are not nearly in the second phenomenon, the real economy is actually doing pretty well. The economy is not at full potential as factories idle some of the time as there is not enough demand for their products. That means that in this case, you could print money without getting inflation, or any significant inflation. Hell, that's what the Fed in the US did with quantitative easing and still no inflation in sight (though the Fed printed money and distributed it through the banks, which wasn't an efficient way of distributing it, money needs to find its way into the pockets of consumers before there can be any significant effect on economic output or inflation).

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@kchoze

Thanks for that. Nice to hear from somebody who obviously knows what they're talking about : )

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lucabrasiJan. 15, 2013 - 12:25AM JST

@kchoze

Thanks for that. Nice to hear from somebody who obviously knows what they're talking about : )

Sorry, but while I admire Kchoze endeavour, he is completely mistaken. This was written nearly one year ago and is very frighteningly prophetic since December the 26th.

'Hyperinflations are not caused by aggressive central banks. They are caused by irresponsible and profligate legislatures that spend far beyond their means and by accommodative central banks that lend a helping hand to governments. In the Japan's case, it seems that the government puts pressure on the BOJ and soon the central bankers will have no option but to monetize like crazy even twice the deficit as in UK, because there will be no buyers of the debt Japan needs to roll-over. It seems that Japan is the only developed country that is exposed to hyper-inflationary risk right now.'

http://seekingalpha.com/article/432981-when-to-worry-about-hyperinflation-where-could-it-happen

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@'Dog

Well. I don't know what to think now. The future's going to be interesting....

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Dog, I don't know who wrote the article you're posting, and where they get their "tipping point" criterion from. The idea that hyperinflation occurs if 40% of a government's spending is fueled by monetizing seems arbitrary, and wrong. Here's an example, if there's a minimal State where the State's spending is like 5% of GDP, and 40% of that spending was fueled by printing money, that's 2% of GDP only, and thus not really significant for the economy. Of course, that's not the case of Japan or most western countries, but it just goes to show that this criterion cannot possibly be correct.

I will point out that as long as Japan finances its debt through borrowing from the private market, by selling bonds at auctions, it will not need to monetize its debt. So one sign of coming "hyperinflation" would be a tremendous rise in the interest rates Japan pays on its debts, as investors shy away from Japanese bonds, causing the bonds' interest to rise to convince investors to buy them. Currently, Japan's bonds' interest rate is still very, very small, less than 1% for the 1-year, 5-year and 10-year bonds. That means that Japan has no trouble finding bond buyers and will not have to monetize its debt in the foreseeable future.

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what they need is a good regional war to kick start the industries again and foster another baby boom like it did in North America.

What? hundred of thousands if not millions killed.. who cares as long as we get that new fridge and white picket fence

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Well. I don't know what to think now. The future's going to be interesting....

Abe says BOJ must set 2% medium-term inflation goal

Abe has already giving you a hint for long term. He is not responsible for long term. Do you get it?

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Currently, Japan's bonds' interest rate is still very, very small, less than 1% for the 1-year, 5-year and 10-year bonds. That means that Japan has no trouble finding bond buyers and will not have to monetize its debt in the foreseeable future.

Not at this moment, but it will when the debt is getting much bigger without healthy GDP growth and effective streamlining in budget. Again, I tell you Japan needs to change old economic model focusing more on Consumption Spending rather than exporting driven economy. The pig is too big to fly.

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As long as the yen is weak it would seem difficult for the price of consumer goods to rise.If taxes are raised without any form of a rise in productivity this would suggest that deflation would be the result. Both the US and the UK have had large rounds of QE but no significant inflation as the banks have been allocated the money which is used to shore up internal accounts and is not made available to the general population. It would take a very irresponsible government and BOJ to cause inflation especially in a world economy that is largely deflationary......

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kchozeJan. 15, 2013 - 01:20AM JST

I will point out that as long as Japan finances its debt through borrowing from the private market, by selling bonds at auctions,

You might not know this because it seems to have been hidden as much as possible by MOF but at the end of November most of the Japanese banks refused to buy anymore JGBs, even with strong prompting by MOF. I have this from someone who has 20 years experience in buying JGBs.

Some people have been saying that the idea of forcing the BOJ to buy JGBs had very little to do with Abe - let's face it, the guy isn't the sharpest knife in the kitchen, when he's at his best - and more to do with a panic reaction of MOF to the fact that the Japanese government might not be able to sell JGBs to the domestic finance market.

If the Japanese banks, I don't know the reaction of the Japanese insurance companies but I suspect they are near saturation point, refuse to buy JGBs, then the Japanese government has 2 options under Abenomics of increasing public spending to stimulate the economy.

Offer the JGBs on the international financial market and they will only taken up with a 5+ % for the buyer.

Get the BOJ to buy them and the quote I quoted above concerning hyperinflation in Japan comes exactly true, even though it was written almost a year ago when you still had the DPJ spending cap. The author didn't even work into the equation abenomics.
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kurisupisuJan. 15, 2013 - 08:47AM JST

As long as the yen is weak it would seem difficult for the price of consumer goods to rise

Did you really mean to write this?

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We are all paying an extra 2.1% income tax as of January 1st until Dec 31st 2037 to pay for 'reconstruction'. I guess we all know where this money will be going.

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1.Offer the JGBs on the international financial market and they will only taken up with a 5+ % for the buyer.

Dog, this is exactly what we are doing. We are paying attention to this carefully. This is well known fact here among bond traders.

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Dog, my post above is not very clear. Sorry. US bond traders think that the JGB will be forced to go to global financial market as there are not enough demands in Japan. We had a special today on this subject. This is a huge miscalculation of Abe. He is not that smart.

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I need to add another terrifying fact to my comment. Do you know who are those investors? Yes, China. About a couple months ago, i have mentioned about this. This is exactly a perfect financial opportunity China has been waiting for. Japan will become next US. They will eat you up.

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You might not know this because it seems to have been hidden as much as possible by MOF but at the end of November most of the Japanese banks refused to buy anymore JGBs, even with strong prompting by MOF. I have this from someone who has 20 years experience in buying JGBs.

End of November

0.099,0.097,0.100,0.140,0.180,0.258,0.364,0.481,0.611,0.730,1.289,1.681,1.839,1.937,2.127

End of December

0.098,0.098,0.099,0.144,0.187,0.292,0.435,0.571,0.699,0.794,1.361,1.754,1.882,1.967,2.138

Wow. Time to push the panic button because there appears to be a mass "sell off" (sarcasm)

You know some people are full of it when they post something like "strong prompting by MOF"

Now we got "capital flight" and as far absurd as hyper inflation when they don't even comprehend the inflation level to achieve such term.

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