Japan's Great Quantitative Easing

So the Bank of Japan is set to double, possibly triple the monetary base in the next two years, with the goal of spurring inflation and finally ending the deflationary spiral they have been in for decades. Lots of other stuff its supposed to accomplish as well, but this is a bit above my pay cut. It is going to be highly interesting to watch though, as in essence this is a great experiment to see if monetary policy really can affect recessions in the way many economist believe (including the Fed chairman Ben Bernake).

If successful would this push the US and especially Europe in a similar direction?

What do the goldbugs among us have to say? :laughing:

In any case, for us here in Taiwan this means the NT dollar is going to weaken. Actually it already has, pushing over 30 NT to the dollar today. Good news for me as I am paid in US. Bad news if you are paid in NT and planning a trip to the US.

Oh no, not another goldbug discussion pleeeeeze.

It’s a good question otherwise. Supposedly the market for Ferraris has mushroomed overnight in Japan. The financial types LURRVE quantitative easing. Who wouldn’t love getting money thrown at them for practically free.

The example of the increased demand for Ferraris was given as an indication that Japan’s economy was growing again, whereas it could also just be looked at as money being shovelled into already rich peoples pockets.

You see QE causes inflation, which is good if you have debts or need to boost asset prices, bad if you have savings and are older (but maybe good for their property prices as they chase some type of return)

Where is the money going to go to, will it go offshore, will stay in Japan, will is cause currency devaluation all round? These are good questions.The Koreans have been up in arms about it (seems it’s only unfair when Japan finally does what everybody else has been doing). Taiwan companies were moaning as usual until they discovered that it made many of their component costs cheaper. Locals are happy that they should get cheaper Japanese cars and can afford to take a vacation in Japan. This will increase their trade deficit a lot as they need to import so much fuel, have they factored this in?

And their bond market is already blowing up because of it.
zerohedge.com/news/2013-04-0 … nd-day-row
Protip: when you have to halt your bond market twice in two days because of extreme volatility, it is not a happy time.

The U.S. Federal Reserve is already buying 90% of the bonds issued there, so any “success” by Japan won’t have a serious effect on what the U.S. does.

Gold is used as a hedge against such devaluations, which is why it exploded a few years ago as the U.S. started down this sort of outright devaluation. Elderly Japanese are pretty fanatical about dumping their money into the Japanese economy, so it’s anyone’s guess whether they’ll say “fuck this! I worked for my money, I’m not going to let the government devalue it out from under me!” or not. If they do, gold should start going back up, hard, fairly soon.

I’m going to hazard a guess that you’re one of those guys who was telling people, when gold was at $700, that it was outrageously overpriced and should plummet back to $200 any second now. Haha, goldbugs suck.

Thanks, I didn’t know about that effect. I’ll start hitting the gold shops, seeing as how that will mean gold will go up in NTD terms as well as probably in USD.

Wow. That’s one hell of an experiment, but it’ll definitely be interesting to see how it pans out. As HH said, whether it achieves the desired effect will depend on where the money flows, and once it’s “out there” the people pulling the strings don’t have much control over that. My opinion is that any large-scale intervention is inherently unpredictable, so even if it’s a success I’m not sure that tells us much about QE in general. Only about how well it works in this country, at this point in history, under Japan’s peculiar circumstances.

Yes, the majority of electronic components used in Taiwan are from Japanese and American suppliers :slight_smile: It’s really only midrange LCD panels that have a significant local market. Local semiconductors and passives are literally decades behind the rest of the world.

[quote=“Mucha Man”]If successful would this push the US and especially Europe in a similar direction?
[/quote]

haven’t you got the horse and cart mixed up? isn’t BOJ’s QE partly in response to everyone else’s printing (similar to CH’s response)?

[quote=“Jack Burton”][quote=“Muzha Man”]If successful would this push the US and especially Europe in a similar direction?
[/quote]

haven’t you got the horse and cart mixed up? isn’t BOJ’s QE partly in response to everyone else’s printing (similar to CH’s response)?[/quote]

Not really. Economists have been urging Japan to do this for a decade, including Ben Bernake who is doing something similar in the US though on a lesser scale. As for Europe, well, the OECD just said a few weeks back:

[quote]The European Central Bank should consider giving more forward guidance and look at quantitative easing in an effort to revive euro-area growth, the Organization for Economic Cooperation and Development said.

“There is a strong case to ease monetary policy further, given weak demand and inflation well below the ECB’s objective,” the Paris-based organization said in a report today. “More specific forward guidance could be given by the ECB. Further thought should be given to how to expand quantitative easing.” [/quote]

[quote=“Mucha Man”][quote=“Jack Burton”][quote=“Muzha Man”]If successful would this push the US and especially Europe in a similar direction?
[/quote]

haven’t you got the horse and cart mixed up? isn’t BOJ’s QE partly in response to everyone else’s printing (similar to CH’s response)?[/quote]

Not really. Economists have been urging Japan to do this for a decade, including Ben Bernake who is doing something similar in the US though on a lesser scale. As for Europe, well, the OECD just said a few weeks back:

[quote]The European Central Bank should consider giving more forward guidance and look at quantitative easing in an effort to revive euro-area growth, the Organization for Economic Cooperation and Development said.

“There is a strong case to ease monetary policy further, given weak demand and inflation well below the ECB’s objective,” the Paris-based organization said in a report today. “More specific forward guidance could be given by the ECB. Further thought should be given to how to expand quantitative easing.” [/quote][/quote]

seems to me though, the factual chronology is: US multiple QE happened, and now BOJ is doing QE to counter USD, hence my point. What am I missing here?

I don’t think BOJ’s printing is a response, more like they realized they need to change something drastically to try and kickstart the economy and cause some inflation. This is the route they chose.

[quote=“Jack Burton”][quote=“Muzha Man”][quote=“Jack Burton”][quote=“Muzha Man”]If successful would this push the US and especially Europe in a similar direction?
[/quote]

haven’t you got the horse and cart mixed up? isn’t BOJ’s QE partly in response to everyone else’s printing (similar to CH’s response)?[/quote]

Not really. Economists have been urging Japan to do this for a decade, including Ben Bernake who is doing something similar in the US though on a lesser scale. As for Europe, well, the OECD just said a few weeks back:

[quote]The European Central Bank should consider giving more forward guidance and look at quantitative easing in an effort to revive euro-area growth, the Organization for Economic Cooperation and Development said.

“There is a strong case to ease monetary policy further, given weak demand and inflation well below the ECB’s objective,” the Paris-based organization said in a report today. “More specific forward guidance could be given by the ECB. Further thought should be given to how to expand quantitative easing.” [/quote][/quote]

seems to me though, the factual chronology is: US multiple QE happened, and now BOJ is doing QE to counter USD, hence my point. What am I missing here?[/quote]

BOJ is not doing this to counter the US. Why would they? They are massively expanding the monetary base to spur inflation to generate spending within the Japanese economy. Not much to do with the US. This is not a currency war.

OK. I see what you and HHII mean now. I do see that a lot of the spending promised by the PM is to invest in infrastructure (read: money for his friends and supporters) in order to “spur” the economy. However, how much infrastructure does Japan need? That said, don’t they still need to devalue the yen to keep exports competitive?

The yen is devaluing because of this. And other currencies in Asia are too, and in this case as a response to the yen falling.

Interesting, the only country I have read so far to be critical of Japan is Germany which doesn’t want competitive Japanese products to be cheaper.

There seem to be a lot of currencies devaluing still. Canadian, Euro, Aussie, GBP, all down against the NTD.