The Revenge Of A Government On Its People

By Tyler Durden
Created 11/05/2014 - 20:43
Submitted by Raul Ilargi Meijer via The Automatic Earth blog [20],
[21]
Arnold Genthe 17th century Iglesia el Carmen, Antigua,
Guatemala 1915

I know Ive written a lot about Japan

lately, and that for some its been
enough for a while, but still, what
happens today under the no longer
rising sun is going to have such
repercussions worldwide that it would
be foolish not to pay attention.
Moreover, theres something about
what Bank of Japan Governor
Haruhiko Kuroda said this morning
that both perfectly and painfully
illustrates to what depths,
economically as well as morally, the
country has sunk.
BOJs Kuroda Vows To Hit Price Goal,
Stands Ready To Do More [22]

Bank of Japan Governor Haruhiko

Kuroda, who last week stunned global
financial markets by expanding a
massive monetary stimulus program,
said the central bank is ready to do more to hit its 2% price goal and recharge a
tottering economy. Kuroda stressed the BOJ is determined to do whatever it takes to hit
the inflation target in two years and vanquish nearly two decades of grinding deflation.
Theres no change to our policy of trying to achieve 2% inflation at the earliest date
possible, with a roughly two-year time horizon in mind, the central bank chief said in a
speech at a seminar on Wednesday. There are no limits to our policy tools, including
purchases of Japanese government bonds .. The BOJ shocked global financial
markets last week by expanding its massive stimulus spending in a stark admission that
economic growth and inflation have not picked up as much as expected after a sales tax
hike in April.

Kuroda said while inflation expectations have been rising as a trend, the BOJ decided
to ease to pre-empt risks that slumping oil prices will slow consumer inflation
and delay progress in shaking off the publics deflationary mind-set.
In order to completely overcome the chronic disease of deflation, you need to
take all your medicine. Half-baked medical treatment will only worsen the
symptoms .. While he stressed that Japans economy continued to recover
moderately, Kuroda said falling commodity prices could be risks to the outlook if
they reflected weakness in global growth.
The Japanese economy was hit hard in Q2, suffering its biggest slump since the global
financial crisis after an April sales tax hike dented consumption, and is expected to
rebound only moderately in the third quarter as the effects of the higher tax take time to
wear off.
Kuroda stuck to his view that the pain from the tax hike will gradually subside, but
warned that the BOJ must be mindful of how the higher levy could affect companies
pricing power, particularly if household spending stagnates. On the yens plunge against
the dollar after last weeks monetary expansion, Kuroda reiterated his view that overall,
a weak yen was positive for Japans economy.
You would expect falling oil prices to provide the Japanese, like Americans, with some
very welcome, even necessary, financial breathing room. But PM Abe and BoJs Kuroda
will have none of it. And no matter how you look at it, theres something at best curious
about a central bank that decides to throw free money at an economy BECAUSE it
sees falling resource prices, which would supposedly make money available already.
What Kuroda in effect says is that he wont allow the Japanese to profit from, or even
feel the relief of, lower oil prices, because they cant be trusted to spend it. The
Japanese government and central bank have no confidence at all anymore? that
people will spend the money which they save on gas, on something else. They expect
for people to, exclusively, sit on those savings. And theyre probably right, which says
plenty about how the Japanese people feel about their economy: there is no confidence
left whatsoever, not in Abe, not in Kuroda.
Moreover, of course, many, the poorest, the indebted, simply wont have any extra
spending cash even if they do save a few yen on gas. For them, Kurodas policies are
very damaging. Which further undermines their confidence, and makes more people sit
on more money. This goes way beyond a central bank pushing on a string. This is the
picture of the trust between a government and its people having been irrevocably
broken. And Abenomics doesnt repair that trust, it only damages it further.
The people dont trust the government, and the government doesnt trust the people.
Neither thinks the other will deliver what it desires. And since its ultimately the
government which hold the reins of power, its using those reins to throw the people
under the bus.

Abe and Kurodas logic is if the people dont do what I want them to do, why should I
take them into account, or care about them? The line of thinking is borderline
psychopath.
Adding insult to injury, a beggar thy neighbor fall in the yen is supposed to be good for
exports, even though that hardly pans out at all so far. It also, and more importantly,
makes imported goods more expensive. In Abe and Kurodas twisted logic that should
drive up prices, but in reality it means people buy even less than before, which
accentuates deflation instead of solving it. Who do you think Abe blames for this?
And the psychopaths are not done with their people. They not only control the monetary
base through what is by now QE9 (not of which, just like in the US, reaches main
street), they have also seized control of Japans pensions. The rationale is: were going
to take their pensions and spend them in the casino disguised as the global stock
markets, because that MIGHT give a better return that sovereign bonds, especially
Japanese ones.
If theres one thing thats kept Japan more or less standing upright over the past 25
years, its that the vast majority of its wealth was invested domestically. No more. And
you might argue this is Japan exporting its deflation across the globe, but at the very
least thats not what pension beneficiaries will experience. They will simply, when
markets tumble, see their pensions vanish into thin air.
US Will Benefit Most From Japans Pension Fund Reform

[23]

U.S. assets will be the biggest benefactor of the Japanese Government Investment
Pension Funds (GPIF) decision to more than double its target allocation of foreign
stocks to 25%, analysts say. The changes to the $1.1 trillion pension fund coincided
with the Bank of Japans shocking decision to ramp up stimulus on Friday, which sent
global equity markets soaring.
The shift for international equities going to 25% of pension fund holdings is
fairly big news, said Tobias Levkovich, chief equities strategist at Citigroup. It
establishes a new incremental buyer of shares and the U.S. should be a significant
beneficiary, he said. The overall contribution to non-Japanese stocks could
approach $60 billion of new purchases, half of which could go to the U.S. by the end
of 2015, said Levkovich, noting that stocks on Wall Street should start to feel the benefit
this year.
Foreign investors typically buy large cap stocks which have greater index impact, he
said. Thus, one cannot ignore the possibility that stock prices jump above our year-end
2014 S&P 500 target on this news. Other analysts agree. Its pretty realistic [that the
U.S. will receive most of the benefit] if you look at where the Japanese feel comfortable
investing their money, Uwe Parpart, managing director and head of research at
Reorient Financial Markets told CNBC.

This is a pension fund making the investment they are not going to punt into small caps
or anything of that sort, they need large, liquid stocks that over decades have had a
reliable return, he said. But Parpart is not convinced the inflows would make a huge
difference to stock market performance. $30 billion sounds like a lot of money, but
stretched over a period of time its not going to move markets, he said. But obviously
its a nice shot in the arm.
Furthermore, an increase in the pension funds international bond allocation to 15%
from 11% should boost demand for Treasurys, driving further inflows into the U.S.,
analysts at HSBC said in a note published Tuesday. Meanwhile, the GPIF will reduce its
domestic bond allocation to 35% from 60%. The BoJs increase in asset purchases
should be more than enough to cover the aggressive reduction in Japanese
Government Bond (JGB) holdings planned by the GPIF, allowing JGB yields to stay
pinned down, said Andre de Silva at HSBC.
Ultra-low JGB yields imply that the relative valuations for other core rates ie. U.S.
Treasuries and other bond substitutes have been further enhanced, he said. Demand
for yield-grabbing would intensify amongst Japanese investors, boosting overseas
investments.
De Silva estimates that over $100 billion could be reallocated into foreign bonds as part
of this trend and highlighted U.S. Treasurys as the most attractive for Japanese
investors. France, Australia, India and Indonesia government bond markets are
attractive alternatives, he said. Japans pension fund is under pressure from Prime
Minister Shinzo Abe to shift funds to riskier, higher yielding investments to help boost
returns, at a time when his Abenomics agenda appears to be running out of steam.
So tell me, what do you think, is this still an attempt to fight domestic
deflation, or has it become a revenge on the Japanese people for not doing what
Abe ordered them to do? Note that early this year, he said Abenomics would work if
only the people believed it would.
In his view, they let him down. In their view, hes an abject failure. He is. Unless the
Japanese people get rid of Abe and Kuroda real fast, theyre going to cause a lot
more destruction. We need to see this in the context of a society in which obedience is
considered much more important than in the west.
In Abe and Kurodas eyes, the people fail, because they fail to obey their edict of
increased spending. The people, too, have a hard time not obeying, but after 20 years
of deflation, they find it too risky to go out and spend. Thats not just a deflationary
mindset, as the powers that be would have you believe, its something much more real
than that.
If the global markets start leaning on Japan, something that may happen any
moment now because of its behemoth debt levels, the entire country could start
going up in smoke. Abe has given signs of seeking to take the blame for his failures

out on China, and the nationalist streak in the population may follow him to an extent,
but it doesnt look like theres enough trust left.
In that regard, its undoubtedly for the better (though we dont know who will succeed
Abe). But its still a highly volatile situation that Japan finds itself in, with huge potential
downside effects for the whole world because its such a large economy thats failing
here.