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Thursday, October 07, 2010 11:00 PM


Lessons Not Learned - No Failure Too Great to Admit It


Hoping to reverse a clear slowing of the Japanese economy, Japan Cabinet OKs $61 Billion Economic Stimulus

Japan's Cabinet on Friday approved a 5.05 trillion yen ($61 billion) stimulus package aimed at boosting the country's flagging economic recovery.

The package, to be submitted this month to parliament for approval, follows 915 billion yen ($11 billion) in measures that Prime Minister Naoto Kan's government has already approved.

The latest package includes measures to boost employment, help small and medium sized businesses, and support regional economies. It also calls for ongoing support of programs to boost sales of environmentally friendly products to consumers.

Tokyo has recently made several major moves to bolster its economy. Earlier this week Japan's central bank cut its key interest rate to virtually zero, and last month it intervened in currency markets to weaken the yen.
A couple of charts is all it takes to show just how ineffective Japan's currency intervention was.

Yen Daily Chart Shows "One Day Wonder"



Yen Weekly Chart

The weekly chart helps put the size of that daily intervention "One Day Wonder" in proper perspective.



Except in the short-term I have yet to see any of these intervention measures stick.

Japan Throws in the Towel?

Japan's finance minister has all but thrown in the towel on large-scale interventions, at least if you believe what he is saying. Please consider Noda Signals Japan to Avoid Return to Large-Scale Intervention
Japan’s finance minister signaled that while his government is ready to sell yen in market if needed, the country doesn’t intend to return to the long-term, large scale intervention campaigns of the past.

“The intervention we conducted on Sept. 15 was to rein in excessive movements,” Yoshihiko Noda told reporters today in Tokyo before departing for a Washington meeting of Group of Seven finance authorities. “It has a different character from one seeking a certain level with large scale, long-term intervention.”
Japan conducted the intervention to "rein in excessive movements". The results are shown above. I fail to see Japan accomplished anything.

Given that interventions don't work, It's a good thing Japan "doesn’t intend to return to the long-term, large scale intervention campaigns of the past."

The question at hand is "Do you believe that?" I don't.

China Unloads Japanese Debt, Japan Complains

Add government bond purchases to the list of things Japan and China are openly feuding about. Bloomberg highlights the story in China Sold Most Japan Debt on Record in August
China sold a record amount of Japanese debt in August, snapping a seventh-straight month of purchases.

China sold a net 2.02 trillion yen ($24.5 billion) of Japanese debt in August, the Ministry of Finance said today in Tokyo. That was the biggest monthly sale in data going back to 2005. It sold 2.03 trillion yen in short-term debt and bought 10.3 billion yen in long-term securities, ministry data showed.

Japanese Finance Minister Yoshihiko Noda suggested at a meeting last month that it’s inappropriate for China to buy Japan’s bonds without a reciprocal ability for Japanese to invest in China’s market.

“I feel strange that China can buy Japanese government bonds while Japan can’t buy theirs,” Noda said in answering lawmakers’ questions at a hearing on the economy on Sept. 9.
Japan's Economy Slows, Trade Surplus Shrinks

Wrapping up this spotlight on Japan, please consider Japan Current-Account Surplus Narrows as Exports Slow
Japan’s current-account surplus narrowed in August as export growth slowed, adding to signs the country’s economic recovery is moderating.

The gap contracted 5.8 percent from a year earlier to 1.114 trillion yen ($13 billion), the Ministry of Finance said in Tokyo today.

“There’s no doubt the economy is slowing,” said Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. On top of demand that’s slowing in China and other trading partners, “we’ll begin to see the strong yen’s impact on exports very soon,” he said.

Governor Masaaki Shirakawa’s board this week unexpectedly cut the central banks’ benchmark interest rate, pledged to keep borrowing costs at “virtually zero” until price stability returns and established a 5 trillion-yen asset-purchasing fund. Japan’s ruling party proposed an economic stimulus in excess of 4.8 trillion yen that would help local governments and small businesses create jobs.
No Failure Too Great to Admit It

Japan is in debt to the tune of 200% of GDP, which is all it has to show for all its Keynesian and Monetarist stimuli over the past decade. So what does Japan do but toss another $61 billion into the fire, fresh on the heels of an $11 billion stimulus plan.

$72 billion total may not sound like much these days, but it is a sizable chunk of money for Japan's economy. Supposedly these stimuli will "boost employment, help small and medium sized businesses, and support regional economies".

It will do no such thing. If these stimulus efforts worked, there would be results to show for it.

Yet the only conclusion of the Keynesian and Monetarist clowns is that Japan did not do enough!

This should be a lesson for the US, but it won't.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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