http://www.businessinsider.com/shinzo-abe-the-boj-and-the-yen-2012-11
Despite running a gigantic national debt, the Japanese yen has for a long time been one of the strongest currencies in the world, confounding bears, and frustrating domestic manufacturers who have felt that the strong currency was hobbling business.
http://www.japantimes.co.jp/text/nb20121119a1.html
Everyone Is Talking About About A Japanese Game-Change That Could Finally Break The Back of The Yen
Shinzo Abe running on a promise of "ulimited easing"
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But the US dollar has snuck up to a 7-month high against the yen, and everyone is talking about a big leg down.
The catalyst?
An election is coming up in December, and Liberal Democratic Party candidate Shinzo Abe is running on a platform of aggressive easing. Everyone is talking about it.
Dave Lutz of Stifel, Nicolaus noted one of the topics he was talking about with clients today:
Japanese shares outperformed as the opposition party cements its lead in the polls ahead of next month’s election. - The Nikkei gained more than 4 per cent last week after Shinzo Abe, leader of the opposition Liberal Democratic party, called for “unlimited” monetary easing.
Jim O'Neill of Goldman talked about it in his weekly note:
Which brings me finally to my theme, and I will be brief. From the Plaza Accord of September 1985 all the way until I joined GS in the Autumn of 1995, I was bullish Yen, and after a brief shift to being temporarily US$ bullish, I returned to being a Yen bull from 1997 until a few years ago. I was quite chuffed with myself for understanding the Yen and it was based on pretty simple stuff, Japan’s persistent and strong balance of payments, especially its trade and current account surplus, and its associated rising equilibrium exchange rate.
All of this has reversed and recently, Japan was reported its first ever current account deficit, or certainly, its first for many decades. They have a very overvalued exchange rate, a collapsing export sector, an unreformed domestic economy, a debt challenge that makes Greece’s seem easy to solve, a central bank that doesn’t try too hard – currently – to reach its inflation target and, once again, a very weak economy. And that is without even getting into the complex issues of its relationship with China and other Asian countries, that in principle should be as good for them as those countries are for the rest of us. Anyhow, we may soon see a general election and a return of the LPD, whose probable Prime Minister has told us now 3 times in the last fortnight that he would force the BOJ, if necessary, to pursue a 3% inflation target. This is the sort of thing that many were advising Japan from overseas in the mid to late 90’s when so many people mistakenly lost of lot of money betting against the Yen. Go get all those guys out of retirement as the time has probably come. The outlook for the Yen is highly asymmetric. It could either waffle around, or could decline sharply in coming months. It is, in my opinion, the most interesting macro thing out there. I have been getting more and more negative about the Yen for the past couple of years, and I have, so far, been wrong, but it seems more and more obvious to me, that the moment is here.
For long-suffering bears on the yen, redemption is looking more likely if options are any guide.
After appreciating more than 60 percent between July 2007 and June of this year, the yen has tumbled almost 10 percent against a basket of developed-market currencies, including a drop of 2.2 percent last week, data compiled by Bloomberg show. Option traders are paying record premiums to protect against further depreciation as Prime Minister Yoshihiko Noda calls for elections next month. The yen slid to the lowest in almost seven months today.
Polls signal the main opposition Liberal Democratic Party will win elections on Dec. 16, led by Shinzo Abe who last week called for the Bank of Japan (8301) to pursue unlimited bond purchases and zero-to-negative interest rates. BOJ Governor Masaaki Shirakawa is due to step down in April after a five-year term.
Watch this space. An election. A possible aggressive change to Bank of Japan policy. The breaking of a big trend in the currency. A Nikkei rally. Will be interesting.
http://www.japantimes.co.jp/text/nb20121119a1.html
Monday, Nov. 19, 2012
Bank's independence in question
Abe pledges to make BOJ buy bonds
Jiji, Kyodo, Staff report
Shinzo Abe said he would consider making the Bank of Japan purchase construction bonds directly from the government to tame chronic deflation if his Liberal Democratic Party wins December's Lower House election and he becomes prime minister.
Abe, who heads the largest opposition party, also said he would appoint as the central bank's next governor someone who agrees with his proposed annual inflation target of 2 to 3 percent. BOJ Gov. Masaaki Shirakawa's term of office is set to expire next April.
"We would carry out necessary public investment and have the BOJ purchase construction bonds to forcibly put money in the market," Abe said Saturday in the city of Kumamoto, referring to special government-issued bonds to raise funds for public works. "We would take fiscal policy steps as well as monetary policy measures to overcome deflation at an early time."
The remarks by Abe, a former prime minister, are backed by many LDP members who have called for massive public works spending to stimulate the economy, but are considered controversial by other parties given Japan's precarious fiscal state and snowballing government debt.
Under current law, the government is obligated to cover fiscal spending with tax income but it is also allowed to issue special construction bonds for public works, for instance to fund new roads and bridges, as politicians claim such infrastructure will be used for years and insist future generations should have to bear the financial burden.
Forcing the BOJ to buy government bonds has been long considered taboo because the move caused hyperinflation and devastated Japan's economy immediately after the end of World War II.
The fiscal law prohibits the central bank from underwriting government-issued bonds. Any purchases of construction bonds by the BOJ could be considered tantamount to the bank financing fiscal deficits, and could thus cause interest rates to spike.
Prime Minister Yoshihiko Noda has criticized Abe for threatening to undermine the BOJ's independence, telling a news conference after Friday's Lower House dissolution, "If a government sets specific monetary policy measures and goals . . . there could be problems in terms of the central bank's independence."
Last week, Abe said the BOJ should fall in line with an annual inflation goal of 2 to 3 percent that the LDP would set if it wins the Dec. 16 election and forms the next government. The bank's current target rate is 1 percent.
The BOJ should provide unlimited liquidity to achieve a 2 to 3 percent inflation target if the LDP is returned to office next month, and its governor should be held accountable if the bank misses the goal and he is unable to adequately explain the failure, according to Abe.
An LDP government would urge the BOJ to implement "unlimited" monetary easing, he said Thursday, stressing the bank's recent expansion of its asset purchase program is not sufficient to boost the economy and end deflation.
In addition, the BOJ should not only seek price stability as a policy goal but also be held responsible for maintaining employment, as some central banks in other countries do, including the U.S. Federal Reserve, Abe noted.
Meanwhile, he described next month's general election as a "historic battle (for the LDP) to take back Japan," saying the party has been polishing its policies in the three years since it was ousted from power by the Democratic Party of Japan in the 2009 poll.
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