Tuesday, December 30, 2014

8 to 12 trillion new Yen per month? Stick a fork in it.


On Dec 30th the Bank of Japan announced that it will start making 8 to 12 trillion new Yen per month.  To get an idea of the scale of this, the Government of Japan averages less than 5 trillion per month in taxes collected.

On Apr 4th 2013 the BOJ announced it would double the monetary base in 2 years.      This came to around 50-70 trillion Yen per year for 2 years.  The monetary base seemed to go up about 0.6% every 10 days.

However, as we started to near the end of the 2 year time period a new policy was  announced on Oct 31st of 80 trillion Yen per year with no end date.   This was 10 to 30 trillion Yen per year more than previously.  The monetary base seemed to go up around 1% every 10 days.

If the Dec 30th rate stays fixed for the whole year, then multiplying by 12 gives a new yearly target of 96 to 144 trillion Yen.  After the initial 2 year period is over, in Apr 2015, instead of stopping it now seems they will be printing about twice as fast.  The monetary base should go up well over 1% every 10 days.

However, one familiar with how these things work, or able to spot a trend, should not expect a fixed 8 to 12 trillion Yen per month for the whole year but instead to see more increases in the rate of Yen printing.  If you did not spot the trend, read the previous 3 paragraphs again.  :-)

14 comments:

  1. Am I correct in thinking that if this rate continues for about 6 years, all outstanding Japan government bonds will be owned by the BOJ?

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  2. I think so. The existing debt is over 1000 trillion but I think the central bank already has over 20%. So less than 800 trillion. If they do 144 trillion per year that would finish in just under 6 years.

    However, they are adding around 50 trillion in new debt each year. So this could get you up to 9 I think.

    I think things will fall apart long before then.

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  3. And most of the world is asleep. Now we are here, I suppose it's just a matter of watching the various tipping points? p.s. Vincent how much of a knock-on effect do you think this will have for the other currencies? i.e. I'm on the lookout for those counter-intuitive things where value/capital flees to the US Dollar as things get worse and worse. Do we have enough tools to construct a roadmap?

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    1. If we have theory that lets us predict when one currency will fail we have done well. To know the ripples from that is really hard. My guess is initially there will be a rush into dollars, as when the Russian Rubble was crashing. But longer term it will make people nervous to hold bonds in the USA, UK, or Eurozone. So then these will start to get trouble as well. Not sure if long term is 3 months or 3 years or what. As the reserve currencies fail the backing for paper money everywhere will be in trouble and so paper money everwhere will be in trouble.

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  4. Hi Vincent, what financial instrument do you prefer for gaining from a weakening yen?

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  5. Doug - JGBD look at the chart going back to late 2011 ... there is simply no chart on the planet for any financial instrument that looks like this.

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    1. What do you mean? Every chart is unique but JGBD is only down 25% during this time and it's based on bonds. It doesn't seem to be affected by moves in the yen.

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  6. Hey Vincent, It's been a year since you first predicted 26% annual inflation in Japan for more than 1 month in a row starting in 2016, right? So another year to go on that.

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    1. So about 2% per month inflation starting in Jan 2016, and running through what... March or so? Later? Care to make any mid course corrections?

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    2. Japan increased their money supply by 1.5% in the last 10 days. The banks government bond holdings are up 2% in 10 days. The interest rate on the 2 year and 5 year bonds has gone negative, because the central bank is buying so fast. I still think that it will happen by Jan 2016. Note though that as an investment I don't need to take even odds on such a bet. So it is more reasonable as an investment idea than as a friendly bet.

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    3. Link showing last 10 days and 1.5% increase:
      http://www.bloomberg.com/quote/BJACTOTL:IND

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    4. Venezuela, Argentina, Russia, Belarus, have shown once again that when a government/central bank is compelled to print money the value of the money goes down. I think it is only a matter of time before the market realizes that Japan is compelled to print money. If you can think of any realistic way that Japan could stop printing money, please explain.

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    5. If the price of oil had not cut in half, I think the strain in Japan would be getting obvious by now. This has bought them a bit of time.

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    6. Jason made a correction to his Japan analysis BTW: http://informationtransfereconomics.blogspot.com/2015/01/updates-for-japan-and-major-correction.html

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Looking for polite debate on ideas. Never attack a person. Be nice.