http://ex-skf.blogspot.com/2013/01/bloomberg-japans-abe-to-create-50.html

SUNDAY, JANUARY 13, 2013

Bloomberg: Japan's Abe to Create 50 Trillion Fund to Buy Foreign Bonds Including US Treasuries?

Shinzo "pork-cutlet-over-curry-rice" Abe is going to be the best friend of Ben "Blackhawk helicopter" Bernanke.

Bloomberg News quotes Nomura Securities, JP.Morgan, and ex-BOJ deputy governor among others who say the Abe administration has pledged to create a 50 - 100 trillion yen (US$558 - 1,116 billion) fund to buy foreign debts, with more than half that money going into the US Treasuries.

Abe's rationale? To make absolutely sure that Japanese yen gets depreciated and inflation rises, which he seems to consider as a sign of robust economy.

Well, I seem to recall a headline several days ago that Mr. Bill Gross of PIMCO, the world's largest bond fund manager, had raised the holding of US Treasuries in December. If these analysts in Japan knew (they talk like it's a given that Abe will create such a fund), Mr. Gross would have known about it long time ago.

From Bloomberg News (1/13/2013; emphasis is mine):

Abe Aids Bernanke as Japan Seen Buying $558 Billion Foreign Debt

Shinzo Abe is set to become the best friend of investors in Treasuries as Japan’s prime minister buys U.S. government bonds to weaken the yen and boost his nation’s slowing economy.

Abe’s Liberal Democratic Party pledged to consider a fund to buy foreign securities that may amount to 50 trillion yen ($558 billion)according to Nomura Securities Co. and Kazumasa Iwata, a former Bank of Japan deputy governor. JPMorgan Securities Japan Co. says the total may be double that. The purchases would further weaken a currency that has depreciated 12 percent in four months as the nation suffers through its third recession since 2008.

The support would help Federal Reserve Chairman Ben S. Bernanke damp yields after the worst start to a year since 2009, according to the Bank of America Merrill Lynch U.S. Treasury Index. Government bonds lost 0.5 percent as improving economic growth in the U.S., Europe and China curbed demand for the relative safety of government debt even with the Fed buying $45 billion in bonds a month.“I can’t imagine the U.S. would be disappointed in Japan buying Treasuries,” Jack McIntyre, a fund manager who oversees $34 billion in global debt at Brandywine Global Investment Management in Philadelphia, said in a Jan. 8 telephone interview. “The Fed’s been doing all the heavy lifting.”

...Strategists are already paring back bearish forecasts for U.S. debt. The 10-year Treasury yield will rise to 2.2 percent by year end, according to the median prediction of economists in a Bloomberg survey. In July, the estimate was 2.7 percent.

Hiromasa Nakamura, a senior investor for Tokyo-based Mizuho Asset Management Co., which oversees the equivalent of $38 billion, is more bullish. Ten-year Treasury yields will fall to a record low of 1 percent by year-end as Japan ramps up purchases, while the yen falls to 90 per dollar, he said in an interview on Jan. 11. Japan’s buying “will be one of the positive factors in the market.”

...The fund could be twice that size or more as “there’s no upper limit,” said Masaaki Kanno, the chief Japan economist for JPMorgan and a former BOJ official. Abe can hold off on unveiling a large plan now until the next time the currency starts to appreciate, Kanno said by telephone Jan. 11.

...Whatever the foreign bond fund’s amount, more than half will probably be funneled into Treasuries because they are the most easily-traded securities, Yoshiyuki Suzuki, the head of fixed-income in Tokyo at Fukoku Mutual Life Insurance Co., which has about $64.8 billion in assets, said on Jan. 8.

(Full article at the link)

http://ex-skf.blogspot.com/2013/01/abe-mimics-us-will-force-bank-of-japan.html

THURSDAY, JANUARY 10, 2013

Japan's Abe Mimics US, Will Force Bank of Japan to Have Job Creation Mandate, Modify Constitution to Send SDF to Foreign Wars

It never enters the mind of the pork-cutlet-over-curry-rice 3rd-generation prime minister of Japan that what he is doing is　a lap or two behind. He thinks he is ahead of the curve.

From Nikkei Shinbun's exclusive interview(1/10/2013) with PM Abe on his economic policies which are collectively dubbed as "Abenomics" in Japan, by an uncritical reporter who does not ask tough questions (for that matter, any question):

Role of Bank of Japan:

「実体経済にも責任を持ってほしい。雇用を最大化することも頭に入れてもらいたい」と述べ、金融政策を通じて雇用拡大に努めるべきだとの認識を示した。為替水準に関して「日本は為替によって競争力を失っていた。（円高を）是正するのは政府と中央銀行の責任だ。努力し続けなければならない」

"I want [Bank of Japan] to be responsible for the real economy. They should keep maximum employment mandate in mind," Abe said, indicating his thoughts that [BOJ] has to strive for increasing employment through financial policies. As to the foreign exchange, he said "Japan has lost competitiveness because of the foreign exchange. It is the responsibility of the government and the central bank to correct (a strong yen). We have to keep trying."

日銀との連携を強化する仕組みとして「協定を文書として取りまとめたい」と表明。共同文書に２％の物価上昇率目標を明記する考えを強調した。２％の達成時期は「世界の多くの国では時期を明記していない。ただ長期はあり得ない。長期というのは目標でも何でもない」As to the mechanism of cooperation with BOJ, he said "I want to formalize the agreement." He said he would include the 2% inflation target in the joint communique. As to when the 2% target will be achieved, he said "In many counties in the world, there is no date given. However, it cannot be long. If it takes long, it's not a target at all."

日銀が２％の物価上昇率目標を達成できなかった場合、諮問会議で「日銀が説明責任を果たしていくことになる」

If BOJ cannot achieve the 2% inflation target, "BOJ will have to explain" in the advisory board meeting.

首相が日銀に雇用最大化を求めたのは、米連邦準備理事会（ＦＲＢ）が根拠法で「物価の安定」と並び「雇用の最大化」を義務付けられていることが念頭にあるとみられる。

The reason why the prime minister demands maximum employment [mandate] for BOJ is the US Federal Reserve Board, whose mandates are "price stability" and "maximum employment".

Successor to Governor Shirakawa:

「２％の物価安定目標、雇用最大化について日銀が決定的な役割を果たす考え方を十分理解する方で、実行力と国際社会に対するアピール力も必要だろう」

"It has to be someone who fully understands the idea that Bank of Japan should play a decisive role in stable [inflation] target of 2% and maximum employment. The person also needs to be a man of action who will impress others in the international arena."

Japanese Constitution (Article 9):

政府が憲法解釈で禁じている集団的自衛権の行使については「今月中にも（第１次安倍政権で発足した）懇談会の結論を正式に首相として受け取り、さらに検討を深めてもらいたい」と、行使容認に向けた具体的な検討を進める方針を明らかにした。As to exercising the right of collective self-defense which the government has interpreted as "not allowed", Abe said "I will officially receive the conclusion by the discussion group (which was established during the 1st Abe administration), and I want the group to further discuss", indicating his policy to come up with concrete steps to allow the exercise of the right.

Abe is probably unaware that it is rare for a central bank to have dual mandates like the US Federal Reserve. ECB's mandate is interest rate stability, and nothing else. I was extremely disappointed to see Governor Shirakawa of BOJ immediately folded after Abe became the prime minister and agreed to have the inflation target. I guess Mr. Shirakawa wanted to serve out his term, which will end in April 18.

I had to laugh when I read "man of action". Like him, I suppose, who can gobble up pork cutlet over rice curry in 3 minutes.

As to high yen hurting the economy, it was not very long time ago that Japan was roundly accused of manipulating the currency at extremely low level to gain export advantage.

Just like Bernanke and most Federal Reserve governors, Abe thinks it is possible to manufacture steadily rising 2% inflation. I guess he's right. The US core inflation does not include food and energy anyway, and those are the two items that have gone up significantly under Bernanke's printing press, particularly in the past 4 years.

Just like the US Obama administration eager to ditch the 2nd Amendment of the Constitution, Japan's LDP has been itching to modify the Article 9 so that Japan can jump into action when an ally is attacked by a hostile force and attack the aggressor even when Japan itself is not attacked (right of collective self-defense). So whenever the US soldiers in Iraq, Syria, Afghanistan, Libya, etc. are attacked, the SDF soldiers will get to go and use live ammunition? How exciting it must be for a chicken hawk like Abe.

I have a suspicion that most Japanese do not understand what the "right of collective self-defense" actually means. They may be thinking it is a right to collectively defend their country. If they are not curious enough to know what it really means, I'd have to say they deserve what they get.

There is also a long article at Nikkei site that covers the entire interview, but as soon as I started to take a look my head started to hurt because of his sheer, utter economic ignorance. If you read Japanese, the link is this (you have to sign up (free) to read the whole article).From what I could tolerate to read the long article, Abe says he will going to somehow force companies to pay more salaries to workers. That will drive the companies that still remain in Japan out.

Lunacy that has been with Japan for the past 20-plus years has just got out of proportion, if that's possible. ("My kind of place" must be the thinking at Goldman Sachs, though.)

In both Nikkei articles, there is not a single word about the nuclear accident, radiation contamination, or even the recovery in the disaster affected areas.

http://www.zerohedge.com/news/2013-01-11/chinese-military-high-alert-after-it-scrambles-fighter-jets-counter-japanese-jets

Chinese Military On "High Alert" After It Scrambles Fighter Jets To "Counter" Japanese Jets

Submitted by Tyler Durden on 01/11/2013 10:58 -0500

Bond

China

Gross Domestic Product

Japan

recovery

Yen

The one thing that most seem to forget in the epic 30 year old story (which has a very sad ending) that is the Japanese floundering economy, is that while the new Abe government may and will likely try everything to crush the Yen (which is already nearing the 90 USDJPY target, however briefly, before it resumes its grind lower once it dawns on investors what it will mean for the Japanese Treasury when bond yields soar), the main reason it has posted three massive monthly trade deficits in a row has nothing to do with its currency, and everything to do with what is now a permanent boycott of Japanese exports by China.

The paradox is that Abe, a well-known nationalist, may well crush the Yen but he will only aggravate Chinese tensions (thus hurting Japanese exports, GDP, and the current account even more) which recently approached boiling point on several occasions over the past few months, most notably in the spat over who owns the Senkaku/Diaoyu islands, and soon over other symbols of nationalist pride. And with the escalations coming faster and more frequent with each passing day, there is little room for optimism that despite all Japan is doing that its economy stands any hope of recovery in 2013 (or later).

In fact, the latest escalation in the seemingly neverending saga over a strategically located rock in the East China Sea, came hours ago, when Xinhua reported that Beijing has scrambled two J-10 jets to counter "Japanese military aircraft disrupting the routine patrols of Chinese administrative aircraft."

From Xinhua:

At a press conference, an official with the ministry confirmed that China sent two J-10 fighters to the East China Sea after a Y-8 aircraft was closely followed by two Japanese F-15 fighters as it patrolled the southwest airspace of the East China Sea oil platform on Thursday.

The two J-10 fighters were sent to monitor the Japanese fighter jets tailing the Y-8 as well as another Japanese reconnaissance plane spotted in the same airspace, the official said.

Furthermore, the official said Japanese military aircraft have been increasingly active in closely scouting Chinese aircraft. The activity zone of Japanese military aircraft has also expanded recently, which is the root cause of security disputes concerning territorial waters and airspace between the two countries.

The Chinese military will be on high alert and China will resolutely protect the security of its air defense force and uphold its legitimate rights, the official said.

Suddenly very real concerns over a flare up in military escalations aside, it doesn't look likeanyone is ready to back down in what is becoming an ever more heated and rancorous expression of nationalist pride, and it certainly does not appear likely that China will lift its "blockade" on Japanese imports any time soon.

As to how China continues to see what is going on in Japan, we go to another Op-Ed from China Daily printed earlier today, titled "Unwise foreign policy turns Japan into own enemy" and this time even the Chinese propaganda is 100% accurate:

The Japanese economy, under the burden of years of deflation and an aging population, has been the "Patient of Asia" for the last two decades.

The Japanese people can cite many reasons for their economic malaise, from bad government policies that led to the forming and bursting of a giant economic bubble in late 1980s and early 1990s to cumbersome mega companies that have been losing money and shedding jobs due to increasing global competition.

More recently, the Japanese economy has suffered another blow due to a bitter row with China, a crucial trade and investment partner, ignited by Tokyo's repeated provocations over the Diaoyu Islands, an integral part of Chinese territory.

Yet new Japanese Prime Minister Shinzo Abe turned the facts upside down when he claimed Friday that China has deliberately targeted Japanese companies as part of a strategy to confront Japan over the territorial dispute.

It is true that economic ties between China and Japan havechilled considerably since former Prime Minister Yoshihiko Noda's cabinet decided to "buy" part of the Diaoyu Islands in September despite strong Chinese opposition.

The outcome is nothing but natural, as good economic relations are always based on sound political ties. It is naive to believe that Japan can maintain strong trade and investment ties with China while repeatedly provoking China on critical issues.

In addition, the pinch felt by Japanese companies results largely from an across-the-board boycott of Japanese goods spontaneously staged by Chinese consumers who felt betrayed by the bellicose Japanese government. The Chinese government has nothing to do with this.

Japanese politicians, including Abe, have only themselves to blame, because their brinkmanship is the root cause of the deterioration of China-Japan economic ties.

They have also been stoking fears about the so-called "China threat" in the broader Asia-Pacific region and trying to build a coalition of countries against China.

For many in China, Abe's latest remarks are just part of an attempt by the Japanese government to depict China as the villain and gain an upper hand in the territorial dispute.

But Tokyo is doomed to lose the gamble, as more and more countries have come to realize that China acts responsibly in the international arena and its development is a real blessing for the whole world.

Meanwhile, Japan has raised concerns in capitals worldwide that its increasingly hawkish policy toward China will further escalate the situation and pose a serious risk to regional peace and stability.

For Japan, its fragile economy is in urgent need of the opportunities a sound China-Japan relationship brings, but Japan's unwise foreign policy has made these opportunities harder to come by.

Thus it is of pressing importance that Abe immediately arrest his country's self-destructive tendency and put its foreign relations and economic recovery back on track so as not to waste his second chance at the top.

Bottom line: don't bet so fast on anything remotely resembling inflation or GDP growth in Japan yet. In fact, it may be time to take advantatge of the recent euphoria and to double down on red.

and....

http://globaleconomicanalysis.blogspot.com/2013/01/yen-falls-to-lowest-level-since-2010.html

Friday, January 11, 2013 12:18 PM

Yen Falls to Lowest Level Since 2010; Japan Promises 10.3 Trillion Yen Stimulus; BOJ to Adopt 2% Inflation Target; Where to From Here?

Bank of Japan to Adopt 2% Inflation Target

Bloomberg reports Yen Falls to Lowest Since 2010 on Stimulus

The yen reached the weakest since June 2010 versus the dollar after Japanese Prime Minister Shinzo Abe’s government said it will spend 10.3 trillion yen ($116 billion) in new stimulus efforts that tend to weaken a currency.

The yen headed for a ninth weekly decline, the longest losing streak since 1989, on speculation the Bank of Japan (8301) is also preparing measures to spur growth.

Japan’s government will spend about 3.8 trillion yen on disaster prevention and reconstruction, and 3.1 trillion yen on stimulating private investment and other measures, the Cabinet Office said in a statement.

The Bank of Japan is set to adopt the 2 percent inflation target advocated by Abe, doubling its existing goal of 1 percent, without setting a deadline for achieving it, according to people familiar with discussions within the central bank. They requested anonymity because the talks are private. The BOJ meets on Jan. 21-22.

Yen Monthly Chart

Where to From Here?

From a technical standpoint, there is support at 1.10, at 1.05, and again at 1.00. Short-term, I would expect it to bounce at one of those levels, perhaps all three, as anti-yen sentiment is extreme.

Bear in mind, the ultimate fate of the Yen depends on what Japan does, not what Japan says.

Advocating a 2% inflation target and actually taking measures to achieve that target are two different things. From my perspective, prime minister Shinzo Abe seems determined to do just that.

Moreover, there will be changes at the central bank, and you can expect those changes to be more dovish, weakening the Yen. The counterpoint is that the Japanese central bank has actually been far more conservative than the Fed, ECB, and the Central bank of China.

Certainly, the Fed and ECB have pulled some pretty dramatic stunts, but speculation now is the Fed may be concerned about the growing size of its balance sheet. (For a discussion, please see Yield Curve: Where To From Here? Extreme Complacency in Face of Bernanke Shift).

Japan is in serious trouble in regards to demographics and balance of trade issues. Here are a couple of posts that layout the case in detail.

Coming Devaluation of the Yen

The counter-argument, proposed by my friend Pater Tenebrarum, is The Yen – What Everybody Knows Probably Isn’t Worth Knowing.

The question is: what does "everybody" know (or even believe)?

I happen to believe Shinzo Abe is serious. Perhaps he isn't. Perhaps the Bank of Japan remains more sensible than Western-world counterparts. Again, I have my doubts.

Any indication (even if incorrect), that Japan is talking but won't really act could send the Yen higher.

Moreover, anti-yen sentiment is so extreme now, that there could be a short-term bounce for technical reasons, even if Japan follows through on its threats.

Long-term, I see no reason to change my belief the Yen is in serious trouble.

Mike "Mish" Shedlock

Catharsis Ours

Friday, January 11, 2013

Abenomics , Right of Self Defense and beware the Abe shit hit the fan moments to come......