The massive number of Yen shorts may be a caution signal, but fundamentally, Japan's prime minister Shinzo Abe is out of his mind with his inflation policies.
Abe hijacked the Bank of Japan with policy appointments under his influence and now the BoJ vows to stick with easy money policy even though over 100% of the recorded inflation is due to the declining yen, not higher wages as Abe wants.
The Financial Times reports Bank of Japan Vows to Stick with Easy Money Policy.
The Bank of Japan will keep its highly expansionary monetary policy in place until inflation hits and stabilises at its 2 per cent target, the central bank’s governor said on Thursday, adding it would take more easing measures if price rises flagged.Arrogance, Incompetence
“We intend to achieve the 2 per cent inflation target and maintain that in a stable manner,” Haruhiko Kuroda told the Financial Times, suggesting ultra-easy money could remain
“It’s not good just to touch on 2 per cent inflation and then go down to 1 per cent or less than 1 per cent.”in place well beyond the two-year timeframe the BoJ has given itself to reach the goal.
Since his appointment by Mr Abe this spring, Mr Kuroda has committed the BoJ to buying some Y50tn of Japanese government bonds a year – a far more aggressive policy than his predecessors’ and enough to double the country’s monetary base by the end of next year.
Yet sceptics have noted that much of the inflation generated has been the result of a steep fall in the value of the yen, which has pushed up the cost of imports, most notably oil and gas.
Mr Kuroda, a former finance ministry official, reiterated his support for tighter fiscal policy to rein in Japan’s huge government debt, which is approaching two and a half years’ economic output. He reiterated his support for a planned doubling of the national sales tax, to 10 per cent by 2015, and said further tax rises or spending cuts would be needed to meet a goal of eliminating the deficit, minus interest payments, by 2020.
It is a sign of arrogance as well as incompetence to believe desires take precedence over reality. And with Abe's appointments, the bank of Japan is clearly way out of control.
Doubling taxes in a recession is insane. Supposedly Abe will make up for it with fiscal stimulus.
But even if Japan allocated 100% of tax revenues to stimulus, a fundamental economic point is governments do not spend money wisely.
Forcing down interest rates harms those on fixed income. And given Japan's huge demographic problem, spending money on more infrastructure (or whatever else Abe wants to spend the stimulus on) is a pure waste of money.
Those on fixed income actually welcome falling prices, but Abe wants them higher. So far, Abe's trashing of the Yen has prices has translated into higher energy costs and food costs, not wage hikes that Abe wants.
Is he concerned? Apparently not. Abe's policy (as with most politicians) is "If It Doesn't Work, Do More of It".
Mike "Mish" Shedlock