What's happening in Japan? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 2 July 2014
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What's happening in Japan? A  A  A

Baltimore, Maryland

We ask because, in the race to the financial catastrophe, Japan is ahead of us.

And this week, in the Financial Times, Shinzo Abe gave us an update.

You may recall, dear reader that Mr. Abe came into office on a reform ticket. He had three arrows, he said. One for fiscal policy. One for monetary policy. One for other things that were never clearly identified but nevertheless must need to be killed.

As bold as he is dumb, Mr. Abe has let his arrows fly. Among his achievements so far, he claims his monetary arrow hit its mark. Deflation is gone from Japan, he says. Now, prices are rising. For the first time since 1997, the inflation reading - at 1.4% in April - is positive.

Wait. In an economy of retirees, living on pension savings, how is that a good thing?

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Don't bother to ask, dear reader. And don't bother to inquire about the cost either. The Bank of Japan is using the QE trick, buying $75 billion worth of bonds each month. At this rate, the central bank will have a balance sheet three times larger than the Fed (as a proportion of the economy) by March of next year.

The authorities are also directly intervening to buy stocks. Why depend on bankers and speculators to juice up your stock market? Do it yourself! According to the report in the Telegraph, the Bank of Japan buys about $200 million worth of exchange traded funds whenever it sees the stock market index stumbling.

In Japan, as in the US, bond buying pushes down interest rates. Low interest rates encourage borrowing...and bubbles...while simultaneously trimming real investment and real output. Result: consumer prices rise.

Getting the real interest rate below zero, in a deflationary economy, is an achievement of its own. No matter how close to zero you go, you still have the price level below you. But give the bonsai prime minister credit. When we last looked the real interest rate was about MINUS 0.8% on the 10-year government bond.

The fiscal arrow too has come to be a pain in the side of the economy. For a quarter of a century, Japan's strategy has been to replace the credit going to households and businesses with credit going to the government. In America, people spent money they didn't have on things they didn't need. In Japan, the government did it.

And now it is doing more of it. This is great news for the cronies and zombies. The Japanese feds borrow the savings of the people and give it to the insiders. The country gets more over-priced infrastructure (vandalism in concrete). The insiders get more money. And the old folks' savings disappear.

The third arrow was the last to be sent off. Where it was going no one quite knew. But it pierced the flesh of Japan's women.

"Since I hoisted the banter of 'womenonomics," in Japan, 530,000 women have entered the labor market."

Is that something to be proud of? Or ashamed of? Women who had been happily tending their families and their homes are now bussing and toting so that "economic growth can be sustained in Japan with its aging population and its falling birthrate."

Putting women in the workaday world may actually depress the birthrate further. We don't know. That's why we're so impressed by dynamic leaders like Mr. Abe. He seems to know everything. He'll help these working women by getting jobs by allowing them to hire foreign housekeepers.

"Diversity" is the key word in the labor market, he says. This is news. We thought 'jobs' or 'wages' were pretty important. But no. Abe says "inflexible labor systems will be reviewed to enable all people, including women, youths, older workers, and people with special talents, to fully display their capabilities."

Way to go, Abe! Take their savings. Then, put them to work!

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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