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Bank of Japandemonium Resorts to “Monetary Shamanism,” and all Heck Breaks Loose

With impeccable timing – on Halloween, which is increasingly popular in Japan among adults who are trying to escape their reality – Bank of Japan Governor Haruhiko Kuroda formally announced that he’d cure Japan’s economic and fiscal ills by resorting entirely, and not just partially, to “monetary shamanism.”

That’s what Izuru Kato, an economist and president of Totan Research, calls Kuroda’s dubious strategy. Japan practiced QE before it ever become a term in English. With predictable results: it did nothing for the economy but triggered unbridled government profligacy that generated ever larger budget deficits and an insurmountable mountain of debt.

But the QE that the BOJ has unleashed since April 2013 isn’t just QE anymore. It’s QQE: quantitative and qualitative easing. No-holds-barred QE. So in the true spirit of Halloween, Kuroda promised that the BOJ would:

  • Increase the monetary base by ¥80 trillion annually (over 16% of GDP!), up from the previous commitment of ¥60-70 trillion. In a few years, its balance sheet will exceed Japan’s GDP.
  • Increase its JGB holdings by ¥80 trillion annually, up 60% from the prior insanity.
  • Lengthen the average remaining maturity of its JGB holdings to 7-10 years, up from the current goal of 6-8 years. Before Kuroda arrived at the BOJ, the average maturity was under 3 years.
  • Triple the annual purchases of ETFs and J-REITs.
  • And keep doing all of this until hell freezes over.

The goal is to demolish the yen, savings, real wages, people’s wealth, and that onerousness mountain of debt, much of which will end up on the BOJ’s balance sheet in a few years. And it seems to be working.

As planned under the economic religion of Abenomics, inflation has roared higher. In September, prices were 3.2% compared to a year ago, with goods prices up 4.6% and service prices up 1.9% (service providers are so pressured by struggling consumers and businesses that they’re eating the 3-percentage-point consumption tax increase rather than passing it on). Here is what that inflation looks like:


Unperturbed, the BOJ uses its own and more convenient measure of inflation, taking out just about everything that adds to it, such as food, energy, and the impact of the consumption tax increase, to come up with a new and much tamer price index – the yellow dotted line in the chart above – which is still too low and has to be jacked up further.

But wages aren’t rising, so households – which do have to pay for food, energy, and the consumption tax hike – are having a hard time making ends meet. And the increasingly numerous retirees are losing purchasing power and wealth as their savings are being devalued. They’re all coming to grips with the scourge of Abenomics: “inflation without compensation.” It boils down to this, as the Statistics Bureau reported today with equally impeccable timing: In September, inflation-adjusted household incomes plunged 6.0% from a year ago.

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