Japan unlikely to suffer hyperinflation, says Abe

Abe is right this time, liquidity will dry out by this summer and deflation will be more visible than inflation, hyperinflation out of question.

He's probably right. The anti-Bernanke and anti-Obama inflation hawks in the U.S. have been amazingly consistent in their errors.

Abe et al are in classic denial. The central bankers have created a currency bubble and a bond bubble that, like all bubbles, will burst in due time. All the balloon needs is a little pick of a pin. Poof!

The central bankers have created a...bond bubble

That's hilarious. With the 10-year JGB yield now nearly at a 10-year low -- 0.6% AND with strong auction demand-- that's one of the strangest "bubbles" I've ever heard of. LOL.

He's probably right. The anti-Bernanke and anti-Obama inflation hawks in the U.S. have been amazingly consistent in their errors.

Well, if you listen to the CBO, you have a point. But if you track REAL inflation, (like the price of gas, food, etc) inflation is a real problem.

But Japan is different than the U.S. in that it CAN'T export it's inflation like the U.S. can. The dollar is the world's reserve currency, and more than half of the dollars in existence are used OUTSIDE of the U.S.

Japan doesn't have that luxury.

Nor does Abe understand that in order to "dial back" inflation, should it get out of hand, interest rates would SOAR, making it nearly impossible to even service Japan's huge debt.

Not so easy, Mr. Abe, but then again, you're a politician, not an economist.

0 Good| Bad JeffLeeMar. 12, 2013 - 08:47AM JST

The central bankers have created a...bond bubble

That's hilarious. With the 10-year JGB yield now nearly at a 10-year low -- 0.6% AND with strong auction demand-- that's one of the strangest "bubbles" I've ever heard of. LOL.

Jeff, I may be wrong but surely record low yields on govt. bonds mean record high prices (i.e. a bubble).

@Wakarimasen Yeah, you're right. I confused "bond bubble" with the wingnuts who predicated rising rates and hyperinflation from loose money policies and large stimulus.

Even so, Japan has been basically flatlining on its govt bond rates for 15 years, which is confounding the hedge fund traders who bet on Japan's bond and currency collapse. Yep, they've lost their shirts and the shirts of their hapless investors over the years, big time.

@jefflee,

Abe is about as near-sighted as Mr Magoo. As the bond rates are so low, near zero, when lending gets tight and interest rates start to rise, and they will, that debt will soon become unserviceable. As wakarimasen pointed out, BOJ doesn't have the tools the FED has to manipulate, so this inflation of the currency supply, real cause of consumer price inflation, will inevitably lead to hyperinflation. Always has, always will. Why keep repeating the errors of the past failed attempts? Dumb.

Why keep repeating the errors of the past failed attempts? Dumb.

Surf - you just answered your own question, and summarised LDP policy in eleven words. Nimbly done!

Japan unlikely to suffer hyperinflation, says Abe

I am more worried about hyperventilation.

JeffLeeMar. 12, 2013 - 07:02AM JST

He's probably right. The anti-Bernanke and anti-Obama inflation hawks in the U.S. have been amazingly consistent in their errors.

While your right about the critics of Obama, you're missing the point that the QE being now practiced by the USA is a different creature from the proposed spending of Abe. The policy practiced by the BOJ at the beginning of this century was similar to the present QE being purued in the USA.

The spending that Abe is now proposing is completely different because the issue is not about government spending in itself but an issue of seigniorage (the difference between the value of money and the cost to produce and distribute it).

Of course the US dollar could at some stage of government spending reach a stage where the US dollar becomes deemed to be worthless, but because the US currency is the world currency, it is still quite far from that. The Japanese currency is not and in all probability Abe's proposed spending will tip it over the cliff and then....... Japan will have hyperinflation.

The real political question is are MOF and the LDP peons bothered by the contemplation of Japanese hyperinflation? Some of us on here for years have been arguing that hyperinflation, on the Weimer model, is the only way for the Japanese government to get out of its debt trap and because that debt, unlike Greece, Spain or Italy, is largely domestically owned, the effects on the world economy would be limited.

The Japanese will be ones to suffer and those foreigners stupid enough to keep their wealth in Yen.

If Abe is so sure that Japan will not suffer hyperinflation, why doesn't he sell his land holdings and invest in Japanese government bonds? The reason is he knows that the Yen will lose much of its value thanks to his incontinent spending plans.

Don't listen to what these weasel politicians say, but look at what they do.

We are in trouble. Plain and simple. If you live here... well expect hard times ahead. If you don't live here, keep it that way. You won't regret that choice when things go south here and they will.

The policies of Abe are wrong entirely.

Inflation in an environment where you have 17% poverty, 1 in 4 women in poverty and a tight job market makes no sense. It means working people and families will be under increasing pressure, in Japan that means they stop spending. So you do not gain anything once consumers stop spending. And they will!

When spending stops. Now the knock on effect comes. Companies that produce goods and services stop selling enough so they cut jobs. More burden on the state, less people spending anything at all. Poverty numbers rise and tax revenue drops.

Hyperinflation. If this happens, then even working stable families stop spending. See point 2.

Bubble. I agree, the recent gains in the market are optimism at work and not reality. The reality is that unless you create jobs, real meaningful decent paying jobs, then consumer spending and tax collection drop off. Both fall into spirals that are dangerous. So you have to create real jobs with real incomes first. I see no real effort here from the LDP, only "hope" that their policies will result in jobs.

The situation here is black. I see no light at the end of this LDP tunnel.

The reason is he knows that the Yen will lose much of its value thanks to his incontinent spending plans.

Very well said! During the WWII, Japan was a conqueror of territories. However J money was worthless paper due to out of control printing. Military officer Abe Grandpa had to buy a bag of rice with tons of cash. His grandpa will be sad if he see his grandson reckless spending and borrowing.

Don't listen to what these weasel politicians say, but look at what they do.

Abe could not even manage his bowel movement during his first term. Economics is his weakest subject. Abe is spoiled son of Aristocrat. He has never understood about hardship and real life economy.

Pumping money to economy will make growth and employments. However it is unsustainable due to higher debt. If there is no more pumping, growth and employment will be weak again. It is a vicious cycle of Abenomic.

So many people are worried about weaker earner spending power but there is already a LONG line of firms queueing up to announce plans to go along with Abe's calls for wage increases...

Some interesting, even educational, comments.

"That debt will soon become unserviceable."

How? 80% is held by large Japanese institutions, like the pension fund... and the BOJ!! Hardly any is held by foreigners, unlike the situation in Greece.

So in effect, Japan's repayment of its debts is ploughed back into its financial, fiscal and monetary system. How does that trigger a collapse?

UpgrayeddMar. 12, 2013 - 11:40AM JST

So many people are worried about weaker earner spending power but there is already a LONG line of firms queueing up to announce plans to go along with Abe's calls for wage increases...

Name them. My salary and my wife's salary, if you include bonuses, have gone down by 30% over the last 20 years in Japan and we are doing quite well. Over 50% of Japanese under 35 years of age are on part time yearly renewed contracts, without benefits and bonuses. Over 30% of the japanese workforce are on similar yearly contracts.

If Abe had really wanted to create healthy inflation, he would have

Legislated 5% yearly pay rises for all Japanese workers for the next 5 years.

Legislated out Koizumi's labour legislation, which has reduced 30% of Japanese to susbsistence level salaries, without health and pension benefits.

Given present labor laws, controlling overtime payments and working hours per week, some financial and criminal teeth.

Reduced direct and indirect taxation on Japanese workers with children under 21 years of age, and reduced government spending.

JeffLeeMar. 12, 2013 - 11:43AM JST

"That debt will soon become unserviceable." How? 80% is held by large Japanese institutions, like the pension fund... and the BOJ!! Hardly any is held by foreigners, unlike the situation in Greece. So in effect, Japan's repayment of its debts is ploughed back into its financial, fiscal and monetary system. How does that trigger a collapse?

Because debt is debt, no matter if I owe it to me brother or a finance company. Those pension funds and banks are private institutions and if their savers are only getting 0.10% on their savings, while inflation is 2%, the pension funds have either 2 choices to keep their savers. They can increase the interest rate on the money they lend to the government to 2.10% and then the government debt becomes unservicable because the Japanese government cannot afford to borrow at that rate or the pension funds and banks lend outside of Japan and not to the japanese government, which means that the japanese government cannot even service the present debt of 230% of GDP.

By the way, the second option has already started to happen from December 2012, where the banks, even under MOF pressure, refused to buy JGBs.

it will take a lot more than 2% inflation to harm Japan's ability to service its debt.

BTW mild inflation replacing mild deflation reduces that real size of public debt, every time.

Heh. Conservatives enchanted by Austrian economics trying to grasp fiscal policy is like a dog trying to understand math.

UpgrayeddMar. 12, 2013 - 12:32PM JST

it will take a lot more than 2% inflation to harm Japan's ability to service its debt.

Do a bit of reading, it won't. Here's a CNBC video which might help, if you find reading too much of a strain on the cognitive faculties

http://www.cnbc.com/id/100391704/Japanrsquos_Debt_Time_Bomb_Is_Ticking_Kyle_Bass

"That debt will soon become unserviceable."

If J government spent too much on infrastructure, it will become serviceable or unable to pay the dividend of bond holders. For example, construction project cost about 800 billions. It is impossible to get back the 800 billions within 5 years. In the worst case, that project may even lose money. If there is no return from project, J government can not repay back the debt.

Debt is not free hand out. J government have to repay even it was borrowed from J citizens. Otherwise they have no funds for retirement.

www.spiegel.de/international/world/massive-japanese-sovereign-debt-could-become-global-problem-a-875641.html

It can default the debt. However it will make investor lose the trust of J government. In the future, who will buy the bond, which will not get any dividends. The consequence is Japanese investors running away from J bonds.

http://www.wilmott.com/blogs/satyajitdas/index.cfm/2013/2/27/The-Setting-Sun--Japans-Coming-Debt-Crisis

http://articles.economictimes.indiatimes.com/2013-01-11/news/36279777_1_low-interest-rates-government-debt-japanese-growth

How? 80% is held by large Japanese institutions, like the pension fund... and the BOJ!! Hardly any is held by foreigners, unlike the situation in Greece.

Many large Japanese institutions are losing billions in 2012. Those institution bought a lot of bonds. In return tax payers have to fund their unprofitable business. 2013 business will be unlikely different from 2012.

Sharp is partly owned by Samsung now. In the future, Panasonic, Sony, Toshiba and Hitachi will be partly owned by foreigners like Sharp. Even Nomura J security fund is not confident about current Abe economic expansion. They are more interested in oversea markets.

Japan gross debt is 250- 300% of GDP. It is worse than Greece or Spain.

http://www.economonitor.com/blog/2013/01/the-setting-sun-japans-forgotten-debt-problems/

http://www.zerohedge.com/news/¥1086000000000000-quadrillion-debt-and-rising-and-whythe-¥-will-soon-be-lost-decade-or-two

It reminds me of the old joke-You can always tell when a politician is lying-their lips move!!! Of course he doesn't want hyperinflation, as the last PM who stoked it up between the wars was assassinated by the military.

Nathaw, excellent post. Very good links as well.

And people are naive enough to believe him why? He is instituting proven to fail policies, public spending, increasing taxes, and HOPING that businesses increase wages, when they have already said they are going to either cut them or hold steady for the foreseeable future. Not just that but government workers are getting pay cuts too.

And he wants inflation, along with everyone getting poorer? Does anyone make any sense out of it?

The rebuttal to Dog and Nathaw

http://www.forbes.com/sites/stephenharner/2013/02/11/cooler-heads-the-rebuttal-to-kyle-basss-japan-market-meltdown-scenario-from-jpmorgans-jesper-koll-and-masaaki-kanno/

And people are naive enough to believe him why? He is instituting proven to fail policies, public spending, increasing taxes, and HOPING that businesses increase wages, when they have already said they are going to either cut them or hold steady for the foreseeable future. Not just that but government workers are getting pay cuts too.

And he wants inflation, along with everyone getting poorer? Does anyone make any sense out of it?

No, that isn't true.

Japanese companies are currently falling over themselves promising to raise wages. Just look at any nikkei from the last week. The list of companies gearing up to raise wages due to Abe's new policies is getting long.

Just off the top of my head would be Lawsons, Honda, Mitsubishi Heavy Industries, Nitori, 7&i, Hitachi, and Toyota.

UpgrayeddMar. 12, 2013 - 05:24PM JST

Japanese companies are currently falling over themselves promising to raise wages. Just look at any nikkei from the last week. The list of companies gearing up to raise wages due to Abe's new policies is getting long.

Again I ask you...... Name Them

Mine isn't. My wife's isn't. None of my japanese freinds' companies are.

The only company I know is 7 and I holdings and they are paying minimum wages now and 95% of their staff are part time.

UpgrayeddMar. 12, 2013 - 05:24PM JST

Just off the top of my head would be Lawsons, Honda, Mitsubishi Heavy Industries, Nitori, 7&i, Hitachi, and Toyota.

Sorry I missed the bottom line of your post but the top of your head is wrong. Neither Toyota and Honda in Japan are offering pay rises in the 2013 pay negotiations. Toyota South Africa is though.

Mitsubishi heavy industries, I suspect because I'm in the same business, is very doubtful because all of us had horrendous results in December 2012 and everyone received just a token bonus.

Hitachi?????? You must be kidding.... Since Fukishima, they've been on their knees.

UpgrayeddMar. 12, 2013 - 05:15PM JST

The rebuttal to Dog and Nathaw http://www.forbes.com/sites/stephenharner/2013/02/11/cooler-heads-the-rebuttal-to-kyle-basss-japan-market-meltdown-scenario-from-jpmorgans-jesper-koll-and-masaaki-kanno/

From the rebuttal you sourced As to who is or would buy JGBs, the answer for the present and foreseeable near term future is: the Bank of Japan.

The last time Japan tried this, 1940-45, the Japanese population and all those Asians who had been occupied by Japan, ended up holding only toilet paper for their lifetime savings.

Way to go... me thinks not.

Sorry, Toyota, Honda, and Mitsubishi are not giving pay raises but will pay 100% of union requests regarding bonuses. For Mitsubishi, it is the first time since 1996 they will accept union demands in full. Honda's bonus will be 5.9 months of pay. Compared to 5 months payed out last year.

Hitachi is making the same hints at meeting union's 5.8 month bonus demand, the highest in 22 years. They are also not on their knees and are posting record profits.

Anyway, Japanese companies are planning actual pay increases because of Abe's policies. The following links are just a small sample of the companies announcing pay hikes in the last 2 weeks alone.

http://e.nikkei.com/e/ac/TNKS/Nni20130306D05HH719.htm http://e.nikkei.com/e/ac/tnks/Nni20130307D0603A19.htm http://e.nikkei.com/e/ac/TNKS/Nni20130311D11SS213.htm http://e.nikkei.com/e/ac/TNKS/Nni20130306D05HH720.htm http://e.nikkei.com/e/ac/TNKS/Nni20130306D0503A01.htm http://e.nikkei.com/e/ac/TNKS/Nni20130304D04EE579.htm http://e.nikkei.com/e/ac/TNKS/Nni20130228D2802F03.htm

UpgrayeddMar. 12, 2013 - 06:43PM JST

http://e.nikkei.com/e/ac/TNKS/Nni20130306D05HH719.htm http://e.nikkei.com/e/ac/tnks/Nni20130307D0603A19.htm http://e.nikkei.com/e/ac/TNKS/Nni20130311D11SS213.htm http://e.nikkei.com/e/ac/TNKS/Nni20130306D05HH720.htm http://e.nikkei.com/e/ac/TNKS/Nni20130306D0503A01.htm http://e.nikkei.com/e/ac/TNKS/Nni20130304D04EE579.htm http://e.nikkei.com/e/ac/TNKS/Nni20130228D2802F03.htm

Are you working for the Nikkei because the only way I can get access to these sources you have quoted, is if I pay to sign up to that crap newspaper?

UpgrayeddMar. 12, 2013 - 06:43PM JST

Hitachi ............. They are also not on their knees and are posting record profits.

Here's a site, among many, which anyone can access, which show that your claim about Hitachi record profits are BS

http://www.startnewsbd.com/news/?p=2027

I hope Abe don't fall sick this round at the Prime Ministership. Inflation will definitely come with monetary easing but not really hyperinflation, not yet anyway.

It's really interesting that you consider a company lowering foretasted operating profit ratio from 5.3% to 5% as a sign that they are "on their knees".

Please continue with your analysis.

@Nathaw

If there is no return from project, J government can not repay back the debt.

When has that ever happened in modern times? Err. never? Repay to whom? Well, it would repay to itself and domestic institutions. Thank God that this ain't Greece!

Debt is not free hand out.

Actually, it is, when you print your own fiat currency, inflation is non-existent and you hold all your own debt.

The consequence is Japanese investors running away from J bonds.

The latest auction for JGBs was described by Reuters as "robust" despite their tiny, tiny yields. The markets and investors LOVE Abenomics, it turns out.

Sharp is partly owned by Samsung now. In the future, Panasonic, Sony, Toshiba and Hitachi will be partly owned by foreigners like Sharp.

You're mixing microeconomics with macroeconomics. Always a sign of a lost argument.

Japan gross debt is 250- 300% of GDP. It is worse than Greece or Spain.

So why hasn't Japan imploded after all these years, while for so long it has run deficits well in excess of Greece's?

There are hedge funds that reflect your outlook, and they've consistently been losing piles and piles of money as they've watched their bets go pear-shaped. Why?

The key point to be concerned about is whether the investments Abe is making in infrastructure will grow Japan in a way that makes Japan robustly competitive on an international scale. Abe only has so many matches to burn, the fire he lights must keep itself burning or Japan will get cold.

Are you working for the Nikkei because the only way I can get access to these sources you have quoted, is if I pay to sign up to that crap newspaper?

Dog. You got schooled. The news about base increase as well as bonus increase are all over the wires. Do you ever consider that you may be completely embarassing yourself due to your lack of language ability?

http://dailynews.yahoo.co.jp/fc/economy/spring_labor_offensive/news_list/?pn=1

Seriously. Do you even have a concept of what "hyper inflation" is?

I'm gonna buy JGBs!!!! Abe wouldn't lie to the people who elected him!!! would he?

nigelboyMar. 12, 2013 - 09:48PM JST

Dog. You got schooled. The news about base increase as well as bonus increase are all over the wires.

In which language?

Uppgrayedd's sources are only available to those who sign up to nikkei.com. Sice I've used my free trial period, I need to pay cash to read those rosey reports of how employers are throwing cash at me in Japan.

All the sites I've sourced are open to anyone with a PC and internet and none of them talk about Hitachi making record profits; they say the opposite, Hitachi's profits are going down.

As for language abilities, I work as a translator for one of Japan's major steel companies, so I'm pretty 'wired up' as the way the way the geese are flying in the heavy industry sector and the nuance of language. You seem to swallow any Japanese statement hook line and sinker. Mitsubishi is in a far worse state than my own company and money is the last thing they are throwing around.

The fact is that a developing economy has a different infrastucture and source of revenue/employment from a developed economy. Japan is trying to run its developed economy on the old Japanese developing model and it doesn't matter how much money Abe throws at infrastucture or how weak the Yen gets, China and Korea produce equally as good quality steel as Japan (Korea better) at half the price and people in the world are not going to throw away their Galaxy for a 2nd rate Japanese version, because it is half the price.

Abe's spending is about protecting and sustaining the Ancien regime for as long as possible and nothing more, and the end result will be ordinary Japanese will lose their savings in the process.

In which language?

In Japanese of course. As to to the wage increases, Upgrayedd is correct.

Funny how Abe asks companies to increase wages, whilst at the same time he wants to cut the salaries of local civil servants. Our salaries were cut last year thanks to reduced payments from the education ministry, even though we aren't civil servants. There is no sign that this cut will be reversed, in fact I think they are planning another small cut this year.

Jeff Lee

Pls read all the links of my last post. Japan can print the money as much as they can. It is nothing new. During the WWII, Japanese money was hyper inflated. According Flyfalcon post, Abe grandpa had to buy a bag of rice with tons of cash.

Infrastructure projects are for the long term. You built the shining airport with massive amount of investment. For getting back the whole capital, it will take many and many years.

http://www.economist.com/news/finance-and-economics/21569435-can-fiscal-and-monetary-splurge-reboot-japans-recessionary-economy-keynes

Japan airport consultant and OECD tried the luck back in 1980s in undeveloped SE Asia. They did not get any cent from their infrastructure projects invested in oversea.

http://www.reuters.com/article/2012/04/21/us-myanmar-japan-debt-idUSBRE83K09O20120421

Actually, it is, when you print your own fiat currency, inflation is non-existent and you hold all your own debt.

It is not according Zimbabwe experience. http://www.irinnews.org/Report/72246/ZIMBABWE-Wrestling-with-the-effects-of-hyperinflation

So why hasn't Japan imploded after all these years, while for so long it has run deficits well in excess of Greece's?

Japan oversea investment have some form of returns. Therefore it is protecting Japan get the cruel fate like Greece. However over investment in public spending will make the returns will not cover as shield for Japan forever. That assets value will be peaked in overtime.

You're mixing microeconomics with macroeconomics. Always a sign of a lost argument.

Japanese national icons owned by foreigners means Japan will not always be safe from creditors. Samsung is not Japanese creditors. They concern about their investment return. They do not concern about Japanese internal problem. Multi-nationals have no obligation to bail out the J government if it failed.

nigelboyMar. 13, 2013 - 08:04AM JST

In Japanese of course. As to to the wage increases, Upgrayedd is correct.

Well here's something in English, just posted which states otherwise

The results of the annual wage negotiations between labour unions and companies confirmed a recent Reuters poll that showed a majority of Japanese firms were reluctant to play along with Abe's calls to raise wages.

http://au.news.yahoo.com/world/a/-/world/16360525/japan-inc-to-pay-bigger-bonuses-cautious-on-higher-base-wages/