"Straight from the shoulder " by Toshio Masuda April 8, 2013
( Free of charge to the people I met)
The ‘Abnormality’ of ‘a Different Dimension’ of the New, Bold Easing Policy of Mr. Kuroda, Bank of Japan Governor
Discipline Loss of ‘Currency Guardians’
I have mentioned the ‘abnormality’ of the decision to introduce monetary easing, which is referred to as a bold, different dimension of Kuroda’s new Bank of Japan that was published in ‘Straight from the shoulder’ (www.chokugen.com/) of Japanese version on April 4.
The Bank of Japan, which has the discretionary power to issue yen as a representation of the value of the national economy which is the ‘sustenance’ of national assets and economic activity, has come to self-impose strict discipline in the issuance of currency ever since the Meiji Era. If there is more currency issued than there is a demand for money in the markets and real economy, the value of the currency will decrease, and rob us of national assets and economic value (like purchasing power).
The Bank of Japan has not newly issued currency above and beyond the amount of money in circulation in the market in order not to rob us of the value of home ownership and savings that the public has saved for decades; they have decided themselves not to purchase national debt (government bonds) over the limits of the ‘rules of the Bank of Japan ’.
The ‘different dimension of monetary easing’ from Governor Kuroda neglects the ‘rules of the Bank of Japan’, absolutely disregards the market that shows the demand for money in the real economy and is an abdication of responsibility for people of the Central Bank of Japan (Bank of Japan) as ‘currency guardians’ by simply doubling the monetary base.
Following the FRB, which has Different Dimensions than the Bank of Japan
The different dimensions of easing from Governor Kuroda are simply following the monetary easing policy that the FRB (Federal Reserve Board) and ECB (European Central Bank) have continued for over five years.
The yen is a local currency that is only valid in Japan; there is no comparison between the capabilities, responsibility, and influence (range of influence) of the yen and the international currencies of the dollar and the Euro, which is the common currency in Europe. The monetary easing policy of those at the FRB who are responsible for the international reserve currency, which targets the world economy and the U.S., who leads the world economy, is able to achieve accountability in the world market through the U.S. Congress. It’s the same for the ECB. Therefore, the FRB describes the world economy and the ECB describes the European economy to the marketplace that determines a monetary easing policy that is over both sides of targeted quality and quantity. Since the yen is a currency that is valid only in Japan as a local currency, the target of monetary policies of the Central Bank of Japan (Bank of Japan) are just for the Japanese economy, not the global one.
Because I have already explained the details of Bank of Japan President Kuroda’s easing previously in this journal and the public reports, I will omit it here, but Governor Kuroda decided to ease the yen to a scale of seven trillion a month until reaching an inflation goal of 2% over the next two years (by 2015).
This is about the same amount of easing as the FRB, who has executed an easing of $85 billion a month (eight trillion yen). What is the basis for the Bank of Japan to have about the same amount of quantitative easing as the FRB, who has an eye on the world economy and whose economic size is three times (about 1,500 trillion yen) the size of the Japanese GDP (gross domestic product: about 500 trillion yen)? The nerve of President Kuroda, who is in charge of the yen which has a fundamentally different currency function, responsibility, and influence than the dollar, following the FRB, which is responsible for the dollar, the international reserve currency, can only be called an abnormality. Does this mean that Governor Kuroda’s ‘different dimension’ make a different dimension of virtual policy which makes the local currency (yen) an international currency?
The Terrible Results of Evidenceless ‘Kuroda’s Magic’
The purchase volume of loans (doubled), the monetary base (total money supply), and the market (call market), will ‘double’ (from 138 trillion yen to 270 trillion yen), double the purchase of long-term bonds (190 trillion yen), ‘double’ (additional purchases of one trillion yen over the period of one year ETF), the purchase of risk exposures (ETF and REIT), and ‘double’ the remaining period of the holdings of government bonds from approximately one to three years to over seven years….
President Kuroda’s ‘conversation with the market’ was a simple declaration of unilaterally ‘doubling everything’ and not a conversation with the market. President Kuroda did not explain his reasons for his ‘many games’ whatsoever and there is no way that he would be able to. There is no variety in ‘Kuroda’s magic’ trick; it is just hypnotizing you to make things that do not exist look like they do exist. The results of Kuroda’s magic is a reproduction of a Japan that has suffered for twenty years and has fallen to the pits of the abyss with the collapse of the bubble after the ‘land myth’ that continued from 1988 to 1991 following the Plaza Accord of 1985 and the frenzy of the ‘Nikkei Average at 38,957 yen’ (February 29, 1989). Kuroda’s magic has forced the induction of public savings into risk financial instruments (like shares) and real estate, has encouraged unnecessary loans with the Japanese banks and is nothing more than an attempt to perfectly trap Japan into a ‘bubble economy of one hundred million total’. It is fate that the fictitious asset demand, where the economic base has increased in a vulnerable Japan, has been swept away to bonds market and the NY Stock Exchange in America, which has been made to ensure an economic revival while increasing its potential growth rate, the U.S. Treasury, and U.S. real estate, etc. Bank of Japan loans have been maxed out, and when the increase of assets, including surpluses, is stopped, the assets of Japan that have poured into America due to America introducing finances and the housing market to the bubble burst will not come back!
Japanese assets that have been taken by America are the bank savings that Japanese people have worked hard to save, cash savings, and loans that were forced by banks. It may take 20 years again to recover these lost assets.
Why Does America Welcome this Bold Easing from Kuroda?
As a result of America continuing its monetary easing policy for over five years, housing prices began to rise and have grown steadily resulting in increase in assets of household budget consumption. Furthermore, the potential for economic growth in America, whose energy costs (electrical costs) have fallen with the revolution of shale gas and oil, has risen, and the foundation of the American economy revival has solidified. Since the effectiveness of this kind of long-term monetary policy is becoming clear, the FRB has begun to look for a way to get out of monetary easing. The risks in the American economy in near future are rising interest rates due to a discontinuation of monetary easing, a decline in stock prices, a budget deficit, and by-products of years of further massive monetary easing. With the depreciation of the yen against the dollar due to Kuroda’s bold easing, the falling of the international competitiveness of the Unite States is a problem of grave significance in the plan to double exports advocated by President Obama, but FRB Chairmen Ben Bernanke lifts up Kuroda’s easing as ‘advantageous in many countries’; why is there absolutely no criticism for market intervention?
That is because Kuroda’s easing is a forced removal of Japanese money to the United States. With the (upcoming) purchase of U.S. bonds on a 50 trillion yen scale, stopping the rise of interest rates due to a discontinuation of easing that worries America will only prop up the stock prices. In addition, Japan will be forced to purchase budget deficits due to American monetary easing. The manipulation of the public opinion in the United Sates against Japan isn’t anything new, but the timing of the birth of the Abe administration and the different dimensions of Bank of Japan Kuroda’s easing is wonderful- for America.
The Market Responds to ‘Kuroda’s Magic’
On the morning of April 5, the yield on 10-year government bonds, which were flooded with the buying of loans with the details of Kuroda’s unimaginable easing in Japanese debt markets, plunged to 0.315%, a record all-time low interest rate.
With a 591 yen increase, the Nikkei Average was also 13,225 yen. However, going into the afternoon session, bond prices in the loans of the futures market completely plunged to their limits and the market suspended trading. After resuming trading, the plunge continued, and trading was suspended for a second time. The yield in the morning skyrocketed from 0.315% to 0.62%, and stock prices also increased by 591 yen in the morning ended with an increase of only 199 yen, and so fell below 13,000 yen and final with12,833 yen.
The morning ‘rush to buy loans’ and afternoon ‘rush to sell loans’ that swept the bond market on April 5 was the market’s response to ‘Kuroda’s abnormal easing policy that absolutely cannot be explained’.
It has been brilliantly suggested that ‘after a temporary frenzy, the Japanese economy will be at the bottom of the abyss’.
The ‘booklet’ (Vol. 45) ready to be published soon is named an ‘Urgent News Flash: Another Dimension to Kuroda’s Monetary Easing’ and the ‘Limit of Abenomics’.
From mid-April until August 15, 2014, along with giving details of ‘The Huge Economic Bubble Frenzy of the Japanese Economy’, I will predict America’s exploitation strategy of Japanese assets that has already been set and there I will introduce ‘How to live Comfortably for another twenty years after the collapse of the bubble economy of the U.S. economy.
I ask you to stay tuned!
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Written by Toshio Masuda