Blog Nico 10 November 201411

10 November 2014
QE-Boy (Jepang) Menggila!

Tax revenues have been static for over a decade and expenditures are escalating fast.
Even if interest rates only rose to 3.5 percent in Japan, which is very likely for a country
on its way to hyperinflation, then all tax revenues would go to pay just the interest.
But interest rates will eventually go above 10 percent, 20 percent, or even more. This
will mean the end of the Japanese economy. The Japanese will be bankrupt and have
to default. But on the way to their default the Japanese will print tens of quadrillions
of yen and eventually hundreds of quadrillions of yen. Remember that hyperinflation
comes from a collapse of the currency and that is already starting in Japan.
-- Egon von Greyerz, founder of Matterhorn Asset Management
The views in this report are those of the analyst named on the final page and are not intended to be impartial or objective. None of the material should be
considered an invitation or recommendation to deal in any particular investment. Statements of fact are believed true but are not warranted to be so. The
report should be considered a marketing communication and has not been prepared in accordance with requirements designed to promote the independence
of investment research. Further, it is not subject to the prohibition on dealing ahead of the distribution of investment research (although VCL's procedure
prohibits doing so). The material was prepared by PT Valbury Asia Futures and distributed by Valbury Capital Limited (which is authorized and regulated by
the Financial Services Authority). Members of the Valbury Group may provide services to any companies mentioned in the report.
Bank sentral Jepang, Bank of Japan (BoJ), telah memperdaya pasar global dengan melimpahinya
dengan hadiah Halloween yang menggiurkan.
Dalam sebuah keputusan yang mengejutkan pasar 2 pekan lalu, BoJ (dengan rasio voting 5:4)
meningkatkan pembelian obligasi pemerintah sebesar 30 trilyun yen ($267,56 milyar) menjadi 80
trilyun yen ($713,5 milyar).
BoJ dipuji oleh PM Abe, dan juga gubernur Kuroda, berhasil mengangkat Jepang dari deflasi hingga
menuju pemulihan ekonomi namun melupakan dampaknya yang mendorong indeks kesengsaraan
ke level rekor tertingginya, meningkatkan kepailitan serta memukul konsumen.
Bahkan, BoJ berjanji untuk meningkatkan 3 kali lipat pembelian aset-aset terkait dengan saham dan
property, seperti Anda bisa lihat dalam proyeksi neraca bank sentral Jepang di bawah ini:
Dan pengelola dana pensiun Jepang (GPIF), yang nilainya mencapai $1,2 trilyun, mengumumkan
bahwa pihaknya akan kurangi alokasi di obligasi pemerintah lokal dari 60% menjadi 35%, dan akan
menggandakan investasi di pasar ekuitas dalam serta luar negeri.
Jadi lelucon ini sudah mendekati akhir. Sehari setelah the Fed AS menghentikan QE, BoJ menambah
program pembelian obligasi DAN SAHAM!
Hanya ada satu pertanyaan! Apakah semua ini akan berakhir dengan bencana global?
Pasar ekuitas melonjak oleh hal tersebut karena stimulus bank sentral memberikan suntikan yang
sangat manis bagi bursa. Namun tentunya ada satu persoalan.
Hal-hal yang melimpah, termasuk hal yang manis, pada akhirnya dapat memberikan masalah, karena
dapat menimbulkan serangan jantung atau (maaf) muntah ketika stimulus tersebut dicabut.
Namun untuk sementara ini, hampir seluruh investor mungkin masih menari menikmatinya sampai
musiknya berhenti
Berikutnya dari Pater Tenebrarum via Acting-Man blog adalah mungkin tulisan yang terbaik
mengenai langkah putus-asa Jepang yang dilakukan bank sentralnya pada 31 Oktober 2014 lalu:
The Experiment that Will Blow Up the World

The BoJ Goes Even Crazier
It has been clear for a while now that the lunatics are running the asylum in Japan, so perhaps one
shouldnt be too surprised by what happened overnight. Bloomberg informs us that Kuroda Jolts
Markets With Assault on Deflation Mindset.
The policy hasnt worked so far, in fact, it demonstrably hasnt worked in Japan in a quarter of a
century. Therefore, according to the Keynesian mindset, we need more of it. Mr. Kuroda therefore
delivered a surprise spiking of the punchbowl that immediately impoverished Japans consumers
further by causing a sharp decline in the yen:
Todays decision to expand Japans monetary stimulus may be regarded as shock
treatment in the central banks effort to affect confidence levels. Bank of Japan Governor
Haruhiko Kurodas remedy to reflate the worlds third-largest economy through influencing
expectations saw the yen sliding and stocks climbing.
Kuroda led a divided board in Tokyo in a surprise decision to expand unprecedented
monetary stimulus. Bank officials hadnt provided any hints in recent weeks that additional
easing was on the cards to help reach the BOJs inflation goal. Kuroda, 70, repeatedly indicated
confidence this month that Japan was on a path to reaching his 2 percent target in the coming
fiscal year. Just three of 32 economists surveyed by Bloomberg News predicted extra easing.
We have to admit that this is sort of a second shock after we had the first shock in
April last year, said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in
Tokyo, referring to the first round of stimulus rolled out by Kuroda in 2013. Kanno, who
used to work at the BOJ, said this is very effective, especially because it comes the
same day as the government pension fund said it will buy more of the nations stocks.
(emphasis added)
So why is there allegedly a need to combat the deflation mindset? Below is a chart of the recent
increases in Japans CPI.
In actual practice, it matters little how they have come about the fact that CPI was inter alia boosted
by a hike in consumption taxes does not alter the fact that every consumer in Japan is now getting
fewer goods and services for his income and savings than before. No consumer is going to a shop
and saying to himself the fact that things are now vastly more expensive than before somehow
shows we are still in deflation, because it has happened for transitory reasons. All he knows is that
he is getting less for his hard-earned money. Mr. Kuroda is evidently not moved by such
considerations.
Japans CPI is recently growing at a 3.2% annual rate.

Obviously, this means one must combat the deflation mindset.
Bloombergs article continues along precisely these lines:

A decline in demand following Aprils sales-tax increase and the tumble in oil prices are
putting downward pressure on prices in Japan. Todays decision came hours after a
government report showed that core inflation eased to the slowest pace in six months in
September.
The 3 percent gain in core consumer prices the BOJs main gauge was just 1
percent with the effects of Aprils sales-levy hike stripped out.
The BOJ today reduced its estimate for the core consumer price index, which excludes fresh
food and increases to sales tax, to 1.7 percent for the fiscal year through March 2016, from 1.9
percent previously. The bank kept its forecast at 2.1 percent for the following year.
The central bank wont hesitate to act again if needed, Kuroda said, pointing out theres
still room for additional measures. The BOJ acted as skeptical views mount over the effect of
quantitative easing, according to Citigroup Inc. economists Kiichi Murashima and Naoki Iizuka.
If the impact of todays action on the economy and prices proves limited, the impact on financial
markets may also prove short-lived, they wrote in an e-mailed note.
The above is a corollary to the recently heavily propagated idea that falling oil prices are somehow
bad for oil consuming countries because they might lead to lower prices! You can read this
nonsense in every statist rag, from the Financial Times to the Economist. If this doesnt prove how
utterly absurd the basis of todays central bank policies is, nothing ever will. These people have taken
complete leave of what was left of their senses.
Although it shouldnt be necessary to say this, here is a reminder: rising stock prices are not proof
that things are fine. If that were the yardstick by which to measure the success of central bank
money printing, the best performing economies in the world would be those of Venezuela, Argentina
and Iran.
BoJ credit, as represented by the asset side of its balance sheet. Still not enough!
Kurodas Policy Will End in A Catastrophe

In order to explain why the pursuit of Kurodas policy is edging ever closer to a catastrophic outcome,
we have to delve a bit into the details of Japans monetary data. In spite of the BoJs QE reaching
record highs, it mainly creates bank reserves and furthers carry trades. The economy sees no private
credit growth so far.
Commercial banks in Japan continue to shrink the stock of fiduciary media this is to say, they are
reducing outstanding credit, which makes more and more unbacked deposit money disappear.
Hence, Japans money supply growth has recently decline to a mere 4.3% year-on-year, as the rate
of contraction in outstanding fiduciary media (i.e., uncovered money substitutes) has accelerated to
9.4 annualized in spite of the BoJs pumping.
The reason is a technical one: contrary to the Fed, the BoJ buys most of the securities it acquires in
terms of its QE operations directly from banks this creates new bank reserves at the BoJ, but no
new deposit money. By contrast, the Fed buys only from primary dealers, which are legally non-banks
(even though most of them belong to banks). This creates both bank reserves and deposit money
concurrently. The BoJs actions can only directly inflate the money supply to the extent it buys
securities from non-banks, e.g. when it buys stocks in REITs to prop up the Nikkei.
Below is a chart showing the annual growth rate of Japans narrow money supply M1, which is
essentially equivalent to money TMS (it comprises demand deposits and currency).
Japans 12-month money supply growth has declined to 4.3%, in spite of the BoJs pumping.
In short, the effectiveness of the BoJs pumping depends on the extent to which commercial banks
are prepared to employ additional bank reserves to pyramid new credit atop them and thereby create
additional fiduciary media. Japans banks are doing the exact opposite, mainly because there simply
isnt sufficient demand for credit. Why would anyone borrow more money, given Japans demographic
situation?
However, one result of this is that an ever larger portion of Japans money supply actually consists of
covered money substitutes deposit money that is backed by standard money. Covered money
substitutes have grown by more than 77% over the past year.
Bank reserves can be transformed into currency when customers withdraw cash from their deposits,
hence to the extent that deposit money is backed by bank reserves, it ceases to be a form of
circulation credit. The narrow money supply in total now amounts to roughly 595 trillion yen; of this,
roughly 139 trillion yen consist covered money substitutes and 83.4 trillion yen consist of currency
(outstanding banknotes in circulation). Thus the stock of fiduciary media has shrunk to 372.6 trillion
yen.
Japan: currency plus demand deposits = M1 = true money supply.
And yet, in spite of Japans money supply growing much slower than money supply in both the US
and the euro area, the yen continues to implode:
The yens plunge is accelerating.
The yens ongoing collapse suggests that Kuroda will eventually get his inflation wish, as import
prices continue to rise. In fact, Japan recently regularly reports trade deficits, which is inter alia a
result of the plunge in the yens external value. Currently, this is offset to some extent by the decline
in commodity prices, but given that commodities are by now extremely cheap relative to financial
assets such as stocks and bonds, it becomes ever more likely that this offset will eventually reverse.
An era of trade deficits has begun in Japan, concurrently with the decline in the yen.
The question is though, why is the yen falling so much if Japans money supply isnt expanding at a
very strong rate? We believe the answer to this question is to be found in the following statistics:
Gross government debt to GDP Japan is the undisputed public debt king of the developed world.
It is well known that Japan has a very high public-debt-to GDP ratio. Even with the recent economic
upswing, its budget deficit for the current year is projected to clock in at more than 7% of GDP the
latest in a string of huge annual deficits. What is less well known is the ratio of public debt to tax
revenues, which is actually the more relevant datum:
Government debt relative to tax revenues.
We conclude from this that the markets are pouncing on the yen because they are forward-looking:
the BoJ is monetizing ever more government debt and this is expected to continue, because the
public debt berg has become too large to be funded by any other means.
In spite of the relatively low money supply growth this debt monetization has produced so far, it also
creates the perverse situation that an ever greater portion of the governments outstanding stock of
debt consists actually of debt the government literally owes to itself.
On the surface, this monetarist wizardry suggests that one can indeed get something for nothing
but that just isnt true. Deep down, market participants know that it isnt true so even though they
are celebrating the promise of more liquidity by sending Japanese stocks soaring, they are also
creating a fault line and that fault line is the external value of the yen.
Among the industrialized welfare states, Japan is the one that is closest to government bankruptcy.
Even with interest rates at record lows, the proportion of debt growth that is caused by mounting debt
servicing costs alone has begun to rise in recent years due to the sheer size of the public debt
outstanding. In other words, the government is by now in a so-called debt trap.
It has only been able to avoid more grave repercussions so far because Japan has run a current
account surplus for a long time, and only very few foreign investors therefore own JGBs. Japans own
state-owned financial institutions such as the Post Bank and the state-owned pension fund have
invested a large part of the populations savings predominantly in JGBs.
And yet, the seeming calm rests on what appears to be increasingly misplaced confidence. All that is
needed to blow the entire scheme to smithereens is an event that leads to a cracking of this
confidence. Once a critical mass of economic actors becomes convinced that the plan is indeed to
make the public debt disappear by monetization, and given what markets have done so far, it seems
increasingly likely that it is the yen that will crack first. However, the sign that the ship is actually
capsizing will be when JGB values begin to plummet in spite of the BoJs buying of government debt.
The growing amount of bank reserves piling up as a corollary to the BoJs exploding holdings of JGBs
are like tinder waiting for a spark to set it off. Since Japans financial institutions hold large amounts of
JGBs as risk free assets augmenting their capital, their solvency will come into doubt should JGBs
begin to decline in value. This is likely to happen should the fall in the yens external value get out of
control. In that event, a large portion of the covered money substitutes sitting in accounts may
actually be converted into currency by panicked depositors. Then Mr. Kuroda will be reminded of the
old saying be careful what you wish for.
Conclusion:
Japans aging population needs rising prices like a hole in the head. The more successful Mr.
Kuroda becomes in forcing prices up, the less money people will have to spend and invest. The
economy will weaken, not strengthen, as a result. The advantages the export sector currently enjoys
are paid for by the entire rest of the economy. Moreover, even this advantage is fleeting. It only exists
as long as domestic prices have not yet fully adjusted to the fall in the currencys value.
If one could indeed debase oneself to prosperity, it would long ago have been demonstrated
by someone. While money supply growth in Japan has remained tame so far, the something for
nothing trick implied by the BoJs massive debt monetization scheme is destined to end in a
catastrophe unless it is stopped in time. Once confidence actually falters, it will be too late.
Haruhiko Kuroda believes the economy is a machine,

and he just needs to pull, the right levers.
Kemudian adalah David Stockman via Contra Corner blog yang juga memiliki sejumlah hal yang
sangat menarik mengenai langkah stimulus tambahan BoJ:
The BoJ Jumps The Monetary Shark Now The

Machines, Madmen And Morons Are Raging
This is just plain sick. Hardly a day after the greatest central bank fraudster of all time, Maestro
Greenspan, confessed that QE has not helped the main street economy and jobs, the lunatics at
the BOJ flat-out jumped the monetary shark. Even then, the madman Kuroda pulled off his incendiary
maneuver by a bare 5-4 vote. Apparently the dissenters - Messrs. Morimoto, Ishida, Sato and Kiuchi are only semi-mad.
Never mind that the BOJ will now escalate its bond purchase rate to $750 billion per year - a figure so
astonishingly large that it would amount to nearly $3 trillion per year if applied to a US scale
GDP. And that comes on top of a central bank balance sheet which had previously exploded to nearly
50% of Japans national income or more than double the already mind-boggling US ratio of 25%.
In fact, this was just the beginning of a Ponzi scheme so vast that in a matter of seconds it ignited the
Japanese stock averages by 5%. And heres the reason: Japan Inc. is fixing to inject a massive
bid into the stock market based on a monumental emission of central bank credit created out
of thin air. So doing, it has generated the greatest front-running frenzy ever recorded.
The scheme is so insane that the surge of markets around the world in response to the BOJs
announcement is proof positive that the mother of all central bank bubbles now envelopes the
entire globe. Specifically, in order to go on a stock buying spree, Japans state pension fund (the
GPIF) intends to dump massive amounts of Japanese government bonds (JCBs). This will enable it
to reduce its government bond holding - built up over decades - from about 60% to only 35% of its
portfolio.
Needless to say, in an even quasi-honest capital market, the GPIFs announced plan
would unleash a relentless wave of selling and price decline. Yet, instead, the Japanese bond
market soared on this dumping announcement because the JCBs are intended to tumble right into
the maws of the BOJs endless bid. Charles Ponzi would have been truly envious!
Accordingly, the 10-year JGB is now trading at a microscopic 43 bps and the 5-year at a hardly
recordable 11 bps. So, say again. The purpose of all this massive money printing is to drive the
inflation rate to 2%. Nevertheless, Japanese government debt is heading deeper into the land of
negative real returns because there are no rational buyers left in the market - just the BOJ and
some robots trading for a few bps of spread on the carry.
Whether it attains its 2% inflation target or not, it is blindingly evident that the BOJ
has destroyed every last vestige of honest price discovery in Japans vast bond market.
Notwithstanding the massive hype of Abenomics, Japans real GDP is lower than it was in
early 2013, while its trade accounts have continued to deteriorate and real wages have headed
sharply south.
So there is no recovery whatsoever-not even the faintest prospect that Japan can grow out
if its massive debts. The latter now stands at a staggering 250% of GDP on the government
account and upwards of 600% of GDP when the debts of business, households and the financial
sectors are included. And on top of that there is Japans inexorable demographic busta force
which will shrink the labor force and squeeze even further its tepid growth of output as far as the eye
can see.
Stated differently, Japan is an old age colony which is heading for bankruptcy. It has virtually
no prospect for measurable economic growth and a virtual certainty that taxes will keep rising since
notwithstanding the much lamented but unavoidable consumption tax increase last spring it is still
borrowing 40 cents on every dollar it spends.
So 5-year JGBs yielding just 11 bps are an insult to rationality everywhere, and a warning
that Japans financial system is a disaster waiting to happen. But even that is not the end of it.
Having slashed its historic holdings of JCBs, the GPIF will now double it allocation to equities, raising
its investment in domestic and international stocks to 24% each.
Stated differently, 50% of GPIFs $1.8 trillion portfolio will flow into world stock markets. On top of
thatthe BOJ will pile on too-tripling its annual purchase of ETFs and other equity securities. This
is surely madness, but the point of the whole enterprise explains why the world economy is in such
extreme danger. A Japanese market watcher caught the essence of it in his observation about the
madman who runs the bank of Japan,
Kuroda loves a surprise Kuroda doesnt care about common sense, all he cares about is
meeting the price target, said Naomi Muguruma, a Tokyo-based economist at Mitsubishi UFJ
Morgan Stanley Securities Co., who correctly forecast more stimulus today.
Thats right. Its 2% on the CPI..come hell or high water. There is not a smidgeon of evidence that
2% inflation is any better for the real growth of enterprise, labor hours supplied and economic
productivity than is 1% or 3%. Its pure Keynesian mythology. Yet all the worlds central banks are
beating a path toward the same mindless 2% inflation target that lies behind this mornings outbreak
of monetary madness in Japan.
Folks, look-out below. As George W. Bush said in another context..this sucker is going
down!
Kesimpulan
Yang terakhir, sebagai penutup laporan ini, adalah Ral Ilargi Meijer dari The Automatic Earth, yang
menjelaskan dengan lugas mengenai ketidakmampuan para pembuat kebijakan Jepang:
Japan: QE As Morphine For A Terminal Patient

You can jot down Halloween 2014 in your calendar, and its unfortunately too tragic to make proper
use of the irony involved, as the day Japan committed suicide. The sun is no longer rising. Not that
the vital signs werent bad before, indeed it might not have survived regardless, but this lethal blow
announced today is still quite the statement.
That financial markets interpret it as a reason to cheer and party and make lots of dough is yet one
more proof of how shallow and single-minded the people operating in these markets are, lacking all
insight in historical context, longer term consequences, wars and politics, and the human mind.
Because the QE as morphine concept introduced today by the megalomaniac Shinzo Abe and his
central bank raving mad puppets will change the world in ways that make financial gain less than
even an afterthought, except perhaps for those of us who cannot see beyond today, or beyond the
one single lonely dimension money is of any use in.
If and when a country resorts to having its central bank buy up the equivalent of all sovereign
bonds it issues, the snake truly eats its tail, and not in a metaphorical sense. Japan eats it children,
most of them as yet unborn, to keep its rapidly ageing population contented and in relative wealth,
because the alternative would cost Tokyos financial-political power cabal their jobs and heads.
Japans problem is, and has been for many years, twofold: first, the Japanese people lost the
spending power to keep the domestic real economy growing some 20 years ago and never got it
back, and second, a whole slew of successive governments refused to restructure the debts in the
financial sector, and instead put those debts on the public tally.
The negative growth announced today in US consumer spending should be a warning sign, as should
similar numbers that have come from across Europe for a while now, a sign that we need to think
about how to run our societies and economies without everlasting growth, and without the ever more
failing and ever more costly policies aimed at constructing and maintaining that growth.
However, the worse the policies are for the real economy and the people who depend on it for
survival, the more money the financial markets, and the banks, make. It truly is QE as
morphine, and Japan has shown us today that morphine can alleviate pain, but it is also in the
end the ultimate killer. [Emphasis mine]
It may already be too late, but we can still make the effort to not fall into the same trap Japan has
fallen in. This in essence is simply trying to recreate a past world that is long gone, by applying
measures that wise men say are sure to bring back the past, and then more.
We must look at ourselves and wonder why we want more. And realize that if we dont take that look,
and we continue on our present path, we will all end up like Japan, guaranteeing that our quest for
more will leave us with less, much less. We cannot build our world with credit, we need to work in
order to build it. And we cannot borrow our way into growth, nor do we need to grow.
Halloween 2014. A day we could have learned something.
Karena pembahasan ini sangatlah luas dan dapat menjangkau jauh ke dalam pasar finansial, maka
akan ada lagi pembahasan mengenai Jepang dalam laporan saya mendatang
Terima kasih sudah membaca dan semoga beruntung!
Regards,
Nico Omer Jonckheere
VP Research and Analysis
PT. Valbury Asia Futures

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10 November 2014

QE-Boy (Jepang) Menggila!

The Experiment that Will Blow Up the World

Japans CPI is recently growing at a 3.2% annual rate.

Bloombergs article continues along precisely these lines:

Kurodas Policy Will End in A Catastrophe

Japan: currency plus demand deposits = M1 = true money supply.

The yens plunge is accelerating.

Government debt relative to tax revenues.

Haruhiko Kuroda believes the economy is a machine,

The BoJ Jumps The Monetary Shark Now The

Japan: QE As Morphine For A Terminal Patient

Terima kasih sudah membaca dan semoga beruntung!

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