BOJ to debate weak yen

Bank of Japan policymakers may debate the potential demerits of further yen declines at their rate review on Friday

Does this mean they may slow down the printing of yen bills somewhat?

Does this mean they may slow down the printing of yen bills somewhat?

@Bertie

I'm sure that was meant as a rhetorical question, but I'll try my hand at answering it anyway.

The government and BOJ are caught up in an inescapable viscous circle at this juncture, well past the point of no return.

The government needs the BOJ to keep the printing presses running so that they will continue financing fiscal spending by buying up Japanese debt (Japanese Government Bonds). If the BOJ were to stop buying JGBs, the interest rate on the sovereign debt burden would increase — that situation could spiral out of control if the BOJ's decreased purchases scared away other buyers and/or caused a downgrade in Japan's debt rating.

The 10 year JGB is now at an all-time low of around 0.5%, so through tax revenues (our taxes) the Japanese government is able to barely service the massive debt it already holds. If that interest rate were to rise back to its late 1990s level of 2% or its 1995 level of over 4%, the government would not be able to service the interest on its debt — fiscal insolvency, and the walls come crashing down. How is that for a doomsday scenario?

How is that for a doomsday scenario?

It's a fascinating doomsday scenario. Ranks right up there with Godzilla destroying Tokyo, both in scariness and likelihood of ever happening. But as this website's comments boards are a hotbed for Japan Doomer Fanboys, I won't bother wasting my time explaining why it's nonsense. I'll just watch the show, and wait to see which of the local "experts" is the first to invoke Godwin's Law (Economics version).

While wary of a Greek debt default, BOJ officials are set to maintain their rosy assessment on Japan’s economy and their massive stimulus program.

I said it before. I'll say it again. Abenomics is a one way bullet towards greek style default, only ours will be MUCH worse.

What the BOJ SHOULD have done is shore up the debt by bringing back all their foreign reserves, encouraging domestic spending by doubling the minimum wage and cutting working hours, and providing more social safety nets such as 100% complete health care as well as more child care assistance from the government to help young mothers go back to work, launch careers, and help the economy without sacrificing motherhood.

Japan can start saving money by modifying the security agreement with America and making them pay the bills. They should since the bases are used for everything but protecting Japan. Next raise the income tax on corporations and place tariffs on imports. This would have to be done selectively so that allied nations or ones in which Japan has a surplus are not included. Next would be to stop wasting money. Stop sending it overseas as foreign aid. They still hate Japan after trillions in aid.

As for the weak yen it bothers me not. My husbands pensions and social security are paid in dollars. The "suffering" of English teachers is not my worry.

Japan Doomer Fanboys

@Guy

Ouch. It looks like my comment struck a nerve, but still the ad hominem remark was unnecessary.

I won't bother wasting my time explaining why it's nonsense.

That's too bad. I would certainly be interested in hearing your view — and might even agree with it (there are many conceivable possibilities as to what might happen if the BOJ turns off the spigot, the one I gave is admittedly the worst-case scenario).

@Sensato - Oops, sorry that remark wasn't referring to you! But your comment was based in part on a common fallacy, that the government of Japan depends on taxpayers' money to spend money. To understand why that is a fallacy just ask a simple question. Where does the taxpayer get his yen that he funds the government with. Once you figure that out things look a lot different

@Guy_Jean_Dailleult, it's appalling the level of economic ignorance in these posts.

Worse, people who write in English "We" when referring to Japanese are obviously not Japanese as Japanese mostly refer to themselves in the 3rd person. The talking points are classic fifty-center.

"The government and BOJ are caught up in an inescapable viscous circle at this juncture, well past the point of no return."

They've been "past the point" for quite some time now....with no tangible repercussions. Maybe it's time to ditch that worldview, given that real events in the real world have disproved it at every turn.

Yen weakness is just what they want and need to export deflation and monetise the debt.

Interesting how Japanese central bank stories get filed in the "Politics" section, rather than under "Business". But I guess that's a fair indication of the way things work in Japan.

the timing of any further monetary easing.

Further monetary easing is a misnomer. Every month the BOJ is already doing that. What they announced previously is "50 trillion yen of assets purchases per year", and they subsequently increased this to "80 trillion yen of asset purchases per year". The policy is to continue these purchases indefinitely (although that may not be feasible).

So the question is not whether the BOJ would do more, but how much harder they would want to press on the accelerator.

I personally think they won't go harder, because as it is the BOJ is already straight-through-processing virtually all newly issued government debt on to the BOJ's balance sheet, and what they have done so far hasn't produced the supposed results. Going faster would just make them hit the wall sooner.

Markets are focusing on what Governor Haruhiko Kuroda will say about the yen, after he drove it sharply higher last week

Markets that move in one direction always have their pullbacks, and probably just used Kuroda's comments as a reason to pull back a bit.

Many BOJ officials say the benefits of a weak yen still outweigh the downside.

A weaker yen alone certainly helps, but Abenomics' failure is not to have brought about enough complimentary changes to improve the Japanese business environment.

@GJD, your theory about how money is created is detached from and inconsistent with reality. You seem to have forgotten this.

@JeffLee, what doesn't cause a disaster in the short term is not guaranteed to be safe in the longer term. E.g. nuclear power plants. You seem to have forgotten this.

"Going faster would just make them hit the wall sooner."

When is that going to happen? I'm curious because the "wall hitting" was supposed to happen after JGBs lost their biggest buyers a while back, when the major institutions re-weighted their funds away from JGBs.

The "suffering" of English teachers is not my worry.

Otani, it will be when we all take our Japanese wives/husbands and children and go home and the only people left here to teach your people any English will be people who can't speak it themselves; not to mention the further decline of the population as westerners take their Japanese families and go home.

@JeffLee, for your benefit, that's not the wall I was talking about...

The BOJ policy is to increase the monetary base by 80 trillion yen a year. Meanwhile the government is running in the red to the tune of 40 trillion yen a year.

So what assets is the BOJ to buy in order to hit its 80 trillion target, and avoid "hitting the wall"?

The BOJ currently can still suck up other older bond issuance from the secondary market to the extent that it is available for purchase, but once there is no more, where do they plan to spend this extra 40 trillion yen? I trust the wall I am talking about is clear to you now.

I'm curious because the "wall hitting" was supposed to happen after JGBs lost their biggest buyers a while back, when the major institutions re-weighted their funds away from JGBs.

Rising interest rates was (and remains) a risk, but through some incredible twist of good fortune, on the very day that the GPIF announced it would be dumping JGBs, the BOJ stepped up with it's announcement that it'd be adding a similar amount of assets to its purchase program. Fukushima Daiichi didn't suffer meltdown in its first 40 years of operation... but it did suffer meltdown... how many times do you need to be reminded?

I regularly change sterling into yen and see a declining yen on a monthly basis. The yen weakness is not only being debated, it is in effect at present. With the highest declining population of any developed country in the world; it is apparent that revitalization of the Japanese economy is impossible. PM Abe knows this and this is why as focus on conflict is to be a staple of the LDP in the years to come. Anyone who wishes to catch a glimpse of the future of Japan need only view the perpetual conflict that the US is involved in on CNN. Orwell's 1984 might also be a primer on the future of Japan too.

"So what assets is the BOJ to buy in order to hit its 80 trillion target, and avoid "hitting the wall"?

So you think the amount of assets in the system is finite or fixed? And that one day soon, the bond auctions are going to run dry? Well, whatever you say. LOL.

"Fukushima Daiichi didn't suffer meltdown in its first 40 years of operation... but it did suffer meltdown"

Even your analogy is wrong. A sudden and external shock (the tsunami) hit the nuke plant. Your take on the J. economy is of a simmering and prolonged accumulation of internal factors.

So you think the amount of assets in the system is finite or fixed?

What I think (still not clear?) is that the BOJ is going to run out of bonds to buy (an amazing feat considering the government's spending problem). So the BOJ will either have to change their policy, or otherwise go create bubbles in other asset classes if they want to stay the course.

Where do you think the BOJ will put the 40 trillion yen? They've got around 10 trillion yen in the stock market now. What's another 40 trillion a year? Only 400%.

Or do you think the government is going to increase spending by 40 trillion yen so as to give the BOJ more assets to buy? (I guess you might like the government to do that, but do you think they will?)

What do you see happening?

A sudden and external shock (the tsunami) hit the nuke plant. Your take on the J. economy is of a simmering and prolonged accumulation of internal factors.

A risk is a risk - no one can predict the specific events or timing that could trigger bad stuff to happen. At the end of the day, my view is that the world's greatest debt burden poses risks to the economy, financial system and people of Japan, yours is that it does not. We both pray that you are right, but in my case hope isn't a plan.

@fxgai

Well, you've got the numbers and you've got the confidence in your projection of how things will play out.

So now give us a time frame on the turning point, so we can revisit this issue to evaluate the soundness of our worldview.