Friday, May 24, 2013

Bank of Japan Printing at Hyperinflation Rates

In the 10 days from Apr 10th to Apr 20th the Bank of Japan increased the base money supply by 7.3%. From May 20 to May 31 they increased the money supply by 4.1%.   Apr 10 to May 20 they increased it by about 9%.  Last Thursday they increased the money supply by 1% in one day.

The BOJ data is released every 10 days.  With compounding a steady  0.65% every 10 days comes to over 26% per year.  With no change in velocity of money or GNP this would result in prices going up 26% per year and count as hyperinflation.   So any 10 day period below with over 0.65% can be viewed as printing money at hyperinflation rates.  Normally the velocity of money would start going up, and the real GNP would start going down, so even less than 0.65% increase in the money supply every 10 days should be enough to get hyperinflation.  They are aiming to double the money supply in 2 years which is about 1% every 10 days.  If the trend starts to go well above this then they are probably losing control and people are getting out of bonds.

It seems the BOJ is working hard to keep interest rates down.   If they have decided to peg interest rates then they have given up on limiting the amount of money creation.

I think this money creation will soon be out of control with the  panic/avalanche/death-spiral/hyperinflation as people get out of Japanese bonds and the central bank makes money faster and faster.  The more new money the central bank makes, the less people will want to hold bonds.  But the less people want to hold bonds, the more the central bank will have to make money and buy bond so that the government has enough money to keep spending twice what they get in taxes.   So I expect the money creation to speed up, not slow down.  At some point prices will start going up.

I highly recommend this video on Japan by OtterWood and also a talk by Kyle Bass on Japan.

Updating below with new releases.

Date        thousand yen          percent change in 10 day period
Mar 31   164,312,302,598
Apr 10    162,832,490,238   -1%
Apr 20    174,711,567,512   7.3%
Apr 30    174,691,381,195    0%
May 10   173,033,334,459   -1%
May 20   177,091,303,645    2.3%
May 31   184,286,172,619    4.1%
June 10   184,283,135,009    0%
June 20   185,895,479,817    0.9%
June 30   187,068,441,810    0.6%
July 10    189,355,201,934    1.2%
July 20    191,731,282,912    1.3%
July 31    196,758,169,295    2.6%
Aug 10    199,135,657,856    1.2%
Aug 20    198,973,150,602   -0.1% 
Aug 31    205,691,877,619    3.4% 
Sep 10    207,289,120,593    0.8%
Sep 20    208,722,749,341    0.7%
Sep 30    208,189,436,612   -0.3%
Oct 10    211,828,333,555     1.7% 
Oct 20    212,494,170,740     0.3%
Oct 31    215,514,238,129     1.4% 
Nov 10   217,667,308,260     1%
Nov 20   220,364,015,346     1.2%
Nov 30   224,088,843,446     1.7%
Dec 10   224,678,737,264     0.3%
Dec 20   223,456,178,374    -0.5%
Dec 31   224,189,765,264     0.3%
Jan 10    228,969,324,231     2.1%
Jan 20    224,986,639,860    -1.7%
Jan 31    232,178,071,091     3.2%
Feb 10   235,222,967,993      1.3%

From March 31 to Oct 20 this is up 37.7%.    This is 20 periods.  With compounding this is equal to about 1.6% per 10 day period.  This is more than twice what is needed to get hyperinflation with a constant velocity of money.  Again, I expect the velocity of money to start going up.  So it is much more than what is needed to make it to hyperinflation. 

The reports are found here and the release schedule is here.


  1. The video was great! Do you agree that US interest rates will fall even lower when things starts to get really bad in Japan? Investors might as well flee to precious metals right away.

    1. There might be a short term help to the dollar and treasuries but maybe not. Seems fleeing to precious metals is the right thing after the first advanced western democracy gets hyperinflation. Many people think that can not happen, so when it does it could be bad for all of them.

  2. Party time! Might as well spend the money because it won't be worth anything in the future.

  3. Yes, situations this crazy *do last*. Look at USA. They have quadrupled monetary base, yet have no inflation and 1% govt. bonds (US treasuries).

    1. In the US they are keeping money off the street by paying interest on banks excess reserves. This is really the same as if they had sold more government debt. It makes it so that the effective money supply is not going up as fast as it seems at first look.

      The US never did 4% increase in 10 days. The numbers this week from Japan will give us some clue if things are spiraling out of control already.

  4. So.

    The last news (June 10, 2013) are interesting.
    1. No additional assets were created *but*
    2. Lots of current reserves leaked into the economy (about 4 trillion yen, ~$40 billion.) *and*
    3. BoJ bought an additional 3 trillion bonds. (does it mean that actual leakish was 7 trillion yen?)

    And one more unknown:
    "Payables under repurchase agreements" is up by a whopping 4 trillion yen. What does it mean ?

    1. I am not sure what to make of it either. Makes the next report even more interesting I think.

  5. May, June, July looks to be averaging over 1% every 10 days. I think things are spiralling out of control already.

  6. The latest is 2.6% increase in 11 days. When do we say people are dumping bonds and there is a "bond panic"? More than 1% every 10 days does not count?

    1. Just like US, even in Japan, all the new money is coming back to the central bank as excess reserves.

      From April 10, 2013 to July 31, 2013, BOJ's BS asset side grew by ~34 trillion yen from 162 to 196) due to purchase of JGBs (~28 trillion) and also partly due to extension of loans (~5 trillion).

      However, this new money has come back to JGB in the form of current deposits from banks (increased from 55 trn to 85 trn) and repo payables (increased from 16 to 20 trn).

      The reason banks are selling JGBs and keeping funds idle with BOJ is:

      - BOJ's insistence on buying JGBs
      - lack of demand for loans
      - the desire to reduce duration given the risk that yields will rise (due to Fed tapering)

      Don't get me wrong. I appreciate and look forward to your views but just that I think this money printing joke by central banks may still have legs because all these interventions cause 2 types of harm:

      - distribute wealth from the poor to the rich (they get away with this because everyone blames different things)
      - reduce overall economic pie and quality of life (they get away with this because general productivity gains in the economy offset this reduction).

    2. This money printing may still have legs. I am surprised JGB holders have not been dumping faster by now. People are amazingly calm in the face of amazing amounts of monetization.

      I also would have expected rising rates since April in the USA to make the Yen with low rates go down. But not seeing that either.


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