Japan's Collapse is Approaching Fast

The BoJ, Japan's Central Bank, is a prime example of irresponsibility and ignorance, having been printing like madmen (Bernanke is probably their biggest admirer) for the past 20 years by buying JGBs (Japanese Government Banks) helping the state to borrow as much as 250% of their GDP, and more recently starting to buy real estate and equities ETF — I lack words to qualify these actions.

They are now coming with another great idea: buy foreign bonds with freshly printed yens. 50 trillion of them:

Jan. 26 (Bloomberg) -- Japan’s finance minister should allow the central bank to create a 50-trillion yen ($643 billion) fund to buy foreign bonds to combat the yen’s gains, a former Bank of Japan deputy governor said.

“Everything will be solved once the finance minister says okay,” Kazumasa Iwata, 65, said in an interview in Tokyo yesterday. As a member of a government panel on national strategy, Iwata proposed the facility in October, an idea Finance Minister Jun Azumi signaled he was reluctant to embrace because it would be equivalent to currency intervention, which is dictated by his ministry.
Please note this unbelievable statement from Iwata: "Everything will be solved once the finance minister says okay".

In the meantime, their economy is collapsing fast. Here are just two examples from the past couple of days:
Jan. 27 (Bloomberg) -- NEC Corp. fell the most in 10 months in Tokyo trading after forecasting its third annual loss in four years and announcing 10,000 job cuts. 
Jan. 26 (Bloomberg) -- Nintendo Co., the world’s largest maker of video-game machines, more than tripled its full-year loss forecast as the success of Apple Inc. devices erodes demand for the company’s 3DS handheld player. 
The net loss in the year ending in March may be 65 billion yen ($838 million), compared with an earlier forecast for a 20 billion-yen loss, the Kyoto, Japan-based company said in a statement today. That was more than the average 29 billion-yen loss forecast by 18 analysts tracked by Bloomberg.
Add to that the fact that the demographic outlook in Japan is horrible, and the also the fact that most people will be contaminated by radio active waste sooner or later, it's not to difficult to imagine that the future of Japan the way we know it is at stake in the coming decade or two.

On the shorter term, I believe that Japan will soon reach their limit in their abilities to borrow and/or roll their debt and that shorting their government bond might be a low risk high reward trade.

I will write in another post how smaller speculator who have no access to the bond markets could try to position themselves for this event.


Anonymous said...

If Japan is collapsing, why is their currency going up?

pej said...

Is that the same Anonymous as the other day? or just another one? ;-)

The currency is soaring for one simple reason: they have been deflating since 1989, and they have been in ZIRP for almost as long, becoming *the* currency of carry-traders and currency speculators, and now that everyone else is in ZIRP, all those trades built over 20 years are unwinding.

In addition to that, the currency is still deflating, meaning that its value is raising.