BoJ Says Ample Room for Easing After Spending Crash

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The Bank of Japan is looking at further easing as retail sales plunge.

Retail Sales Plunge to 4.5 Year Low

On October 1, Japan increased its sales tax to 10 percent from 8 percent. In response, Japan's Retail Sales Plunge to a Multi-Year Low.

Japan's retail sales tumbled at their fastest pace in more than four and a half years in October as a sales tax hike prompted consumers to cut spending, raising a red flag over the strength of domestic demand.

Retail sales fell 7.1 percent in October from a year earlier, pulled down by weak demand for big-ticket items such as cars and household appliances as well as clothing, trade ministry data showed on Thursday. The data showed department store sales were hit particularly hard.

The drop marked the biggest since a 9.7 percent fall in March 2015 and was worse than a 4.4 percent decline predicted by economists in a Reuters poll.

Japan Ruling Party Piles Pressure on Government for Big Fiscal Spending

Next, please consider Japan Ruling Party Piles Pressure on Government for Big Fiscal Spending

Japan's ruling party lawmakers on Wednesday piled pressure on the government to compile a big spending package, increasing the chance fiscal policy could play a bigger role in sustaining a fragile economic recovery with the risk of more debt issuance.

With tax revenues seen undershooting the government's forecast this year, calls for bigger fiscal spending heighten the chance Japan will issue more bonds and further delay progress in reining in its huge public debt, analysts say.

Bank of Japan Gov. Haruhiko Kuroda Offers Spending Endorsement

The ruling party can increase spending because Bank of Japan Gov. Haruhiko Kuroda offers endorsement of more fiscal spending.

Bank of Japan Gov. Haruhiko Kuroda endorsed on Thursday government plans to compile a fiscal spending package for disaster relief and measures to help the economy stave off heightening global risks.

Kuroda said a mix of fiscal and monetary stimulus measures was a standard way to support the economy, and something the BOJ was already doing by keeping borrowing costs low under its yield curve control (YCC) policy.

“YCC, which intends to keep short- and long-term rates quite low, would make fiscal policy even more effective,” he said. “But our monetary policy will continue to be guided by our major objective, which is to achieve price stability and keep financial stability.”

Ample Room for Cuts

Finally, please note BOJ's Kuroda Says There's Ample Room for Further Easing at Present.

Bank of Japan Governor Haruhiko Kuroda said on Friday that the central bank would not hesitate to ease policy further if the momentum towards its price stability target is lost as there's "ample room" for more easing.

Speaking at parliament's lower house financial committee, Kuroda also said the BOJ would weigh costs and benefits if the central bank were to deploy additional easing steps.

Japan General Government Gross Debt to GDP


Q&A on Japanese Debt

Japan’s government debt to GDP is approaching 250%. It's the highest in the developed world and more than double that of the U.S.

Q. How did Japan get there?

A. Fiscal stimulus to defeat deflation, wasting every penny of it.

Synopsis

  1. Japan wasted money for decades in a foolish attempt to defeat routine price deflation.
  2. To rein in the debt, Japan hiked taxes.
  3. Following tax hikes, spending plunged as did tax revenues.
  4. To stimulate the economy, the central bank lowered interest rates, more and more and more and more.
  5. When that did not stimulate the economy, the government wasted still more money on still more useless infrastructure projects.

Abenomics

This above scenario is called "Abenomics" in honor of Shinzō Abe, the Prime Minister of Japan since 2012 even though Japan had been wasting money fighting deflation since the 1990s.

Three times Abe hiked taxes to curtail debt only to spend more money each time when the tax hikes killed consumer spending.

And so here we are once again with "ample" room to spend more and cut rates despite rates being negative.

Hope Springs Eternal

This is all happening in hopes of producing inflation.

The BIS did a historical study and found routine deflation was not any problem at all.

Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

Uncertainty Prevails

Abe likes to hike taxes and spend more.

It hasn't stimulated the economy yet and never will. Yet, uncertainty prevails.

How many more times Abe will try this foolish plan remains a mystery.

Mike "Mish" Shedlock

Comments (23)
No. 1-11
caradoc-again
caradoc-again

They try to reign in debt, leading to more debt.

Onni4me
Onni4me

Here in the EU economical easing zone things start to flash signals that something is very wrong. Talking to another entrepreneur, she told me that she was unable to secure a household repair loan from bank due to her status of being a business woman.

The bank person told her that same would apply if she would co-sign with her husband but that if the husband - who works in public sector - would take the loan himself then later she could sign as a guarantor...

We are talking about a person who has little debt, is not too old and has a regular income and owns her own small business. Seems like private sector entrepreneurs are considered carrying Ebola virus or something.

Same actually happened to me this year asking for a roof repair loan the house and land being as collateral. I had asked a friend to come as guarantor since he has regular significant income. No loan approved. I have been customer of that bank since 1997 and had several loans with them in the past.

This topic was about Japan but the same effects are to be seen everywhere. Interests below zero and still banks are not lending. Perhaps they know something we don't? I am typical person looking for a loan, not rich, not poor and never had any unpaid dues but somehow that's not enough in the nowadays environment of easing.

I predict that people just get poorer while trying to pay the interest of these mountains of debt with the income of real economy. Printing virtual yen, dollar or euros is not going to solve anything.

TheLege
TheLege

Japan is in a death-spiral. Any peanut can see that. The clock is ticking.

hmk
hmk

What I don't understand is when the BOJ buys all the negative interest rate bonds to finance govt debt how is that accounted for? I assume only the BOJ is buying the debt no one in the private sector would lend the govt money and get less back. Isn't the BOJ technically insolvent when they buy all this garbage negative interest rate bonds and get less back than it paid for them? What happens if they are insolvent or am I missing something?

Tony Bennett
Tony Bennett

Central Banksters love to party with Kuroda ... the ultimate "hold my beer" fellow.

All eyes on him as central banks the world over appreciate someone else taking the lead in Krazy. And follow they will ... no matter how disappointing the results.

Central Banks will NEVER admit the best thing is to do nothing and allow the much needed clearing. And since all they have is hammer (lower rates & QE), every problem is a nail.

CautiousObserver
CautiousObserver

You mean government that commits to taking ever larger amounts of money out of its economy to fund wasteful spending ultimately depresses economic activity? Who would have thought?

This is an obvious death spiral. (1) Government deficit spending increases to provide stimulus. (2) Taxes must be increased to help pay for excessive spending and debt. (3) Actual tax collections fall due to productive citizens changing their behavior. (4) Taxes need to be increased again. It all ends with a “Splat!”

The US should be heeding this lesson, but it does not appear to be.

Jackula
Jackula

Oh boy! MMT coming to Japan big time: I'm betting someday soon the yen will be toilet paper. The rest of the world will probably follow

Bam_Man
Bam_Man

They will keep doing this until the currency collapses.

When that will be, is the big unknown.

RonJ
RonJ

"The BIS did a historical study and found routine deflation was not any problem at all."

The problem is that we are not in something routine. We have gone from the extreme of the Great Depression to the extreme of WW2, which created the US. as the extreme producer to the world, along with an extreme baby boom. That has now all reversed, with the extreme of China becoming the producer to the world and first world population growth rates shrinking. Things are way out of balance.

Webej
Webej

On the other hand, insofar as the bonds are not held by the BOJ, the aging Japanese have socked away 250% of the GDP in savings in an institution that is far safer than privately owned banks to buy some fixed income.

MrGrummpy
MrGrummpy

I do not understand why anyone would buy an investment with a guaranteed negative return. Why not just sit on the cash?