As Japan has committed to kamakazi style quantitative easing, attempting to print itself out of economic stagnation, it is heading down a path which will lead to the Yens demise. Not only is debt to GDP 200% but the bond market is beginning the phases of crashing as confidence dictates bond yield. You cannot have a quantitative easing programme which is as big as the USA’s but have an economy 4 times smaller. Although the initial results of QE are helping exports, the countries around it will begin to reduce the value of their currencies to maintain competitiveness. This action will wipe out Japanese savings and hyperinflation will become rampant, the warning signs are here but the politicians hold steadfast on their deluded path.
For an in-depth look at what’s happening in Japan, watch this Otterwood observations, its only 23 minutes but explains the issues.
From the Hedge:
Surging nominal imports and a miss for exports just about sums up perfectly just how the reality of Abenomics is crushing the real economy as the market goes from strength to strength on the hope that recovery is just around the corner. For the 28th month in a row Japan trade deficit has dropped YoY and its 12-month average is now at its worst ever. Energy costs are driving up imports (and adjusted for the devaluation in the JPY, the data is simply horrendous. Of course, there are green shoots – CPI is not deflating as fast as it was… and ‘some’ inflation expectations are rising (though as we noted here that is simply due to the tax expectations). Contrary to expectations held by some in the bond market, the BOJ did not comment on the sharp fluctuation in JGB yields since April as a result of monetary relaxation – on the basis, we assume, that if they don’t mention it, it never happened. The result post a nothing-burger of ‘more uncertainty’ from the BoJ, the Nikkei keeps screaming higher, JPY rallied then fell back, and JGBs are sliding higher in yield.
5 Year Japanese Bond Yields: