Victor Kyprios comments

Posted in: Man arrested for molesting woman after being invited to do so online See in context

Japan -- So many questions, so few answers

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Posted in: Japan swings back to current account surplus See in context

The fact that Japan had a trade surplus in February is old news, I read about last month, so I am not sure why it is being reported again. Here is the actual trade balance figures from the Japanese ministry of finance for the first 20 days of March... as the data shows, once again Japan is in a trade deficit and I doubt the final 10 days are going to make a significant change in the deficit.

Currently the BOJ is under immense pressure to conduct further easing (print yen), and have already set a target of 1% inflation for the current year. When the trade balance numbers for March are released and the BOJ has time to realize they are nowhere close to realizing a 1% rate, complied with the government pressure for more dovish action, expect major monetary easing and the yen to significantly weaken.

Japan is stuck between a rock and a hard place and the glue that keeps Japan's financial system together all hinges on the yields of JGB. Should they spike, Japan will be in a world of pain as interest payments on their debt become an ever larger percentage of tax revenues. To prevent this, Japan will almost certainty monetize their debt by printing an ungodly amount of money in an effort to keep yields on JGB down. This will destroy the value of the yen and possibly lead to hyperinflation. The catch-22 in all of this is that if Japan truly gets out of their deflationary rut and achieves a 1% inflation rate, JGB will HAVE to rise to produce a "real" rate of return (since currently they are at about 1%) and kicking off the chain of events that was just described. The other options are just as dismal -- keep the status quo and the yen will strengthen even more and watch Japanese companies drop like flies or a downright default which will is the least likely scenario given that their debt is almost exclusively internal.

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