Japan: The lab rat is experiencing confusion….

japan lab rat

The Japanese stock market is hitting new highs as the Yen continues its slippage. However, the world’s most dangerous financial experiment is still struggling to deliver tangible reflation results.
Here’s a few things which still bother us….

1. A weak Yen helps exports but if import prices are rising even faster then that’s not a result which helps the Japanese GDP denominator weighed down by a 250% debt millstone. See this chart from the WSJ:

2. Japan’s GDP actually contracted by 7.1% in Q2. Not helpful for the debt ratios either.

3. And just to capture the Frankenstein monetary madness currently being employed in the Japan laboratory… the Bank of Japan is now paying banks for the pleasure of lending to them! More from Reuters here…

The Bank of Japan has begun payingbanks for the privilege of lending them cash in a sign the central bank is reaching the limits of its power to reflate the economy, although it may soon be forced to pump yet more money into the financial system.

Negative yields are more than a footnote in the BOJ’s unprecedented “quantitative and qualitative easing” (QQE) policy. They show that Governor Haruhiko Kuroda’s 18-month-old monetary experiment is struggling barely halfway to its 2 percent inflation goal.

It is 20 months since the markets shifted and the Nikkei flew on the revelation of Abenomics and its reflationary methods and goals. We might expect further revelations and new radical tactics because the BOJ buying 70%(yes!) of all bond issuance apparently is not moving the dial…..

 

 

Debt

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