By Philippe Herlin -
Researcher in finance / Contributor
to Goldbroker.com
Japan just crossed another
hurdle in its escape ahead by monetization of its debt in what can be called
a show of strength by the new Prime Minister, Shinto Abe, against Japan’s
central bank.
The Bank of Japan (BoJ), for
that matter, is the central bank having used the printing press the longest,
precisely since the bursting of the stock market and the real estate bubbles
of the early 1990’s. The Fed, the ECB and the BoE only started using it with
the 2008 crisis.
Since the bursting of this
bubble, all the different japanese governments have instigated recovery
plans, added to the budgetary deficits, and accumulated a public debt that is
now the most important of the developed world (220% of GDP). And the BoJ is
contributing by buying some of the State bonds to finance the debt.
What are the results of this
onerous policy ? None, because there is no growth to speak of. Well, this is
one more reason to continue and amplify this movement, says Shinto Abe, the
new Prime Minister! The BoJ, after about ten « quantitative easing »
plans, is not too willing to go ahead, hence the show of strength by Abe. The
BoJ independence, guaranteed by its statutes, couldn’t resist. It’s a show of
strength, consecrated by a « common declaration » about the
objectives of the BoJ.
The new adversary has been
designated : deflation. Prices only dropped by 0.2% in 2012, but that’ll
be enough. The target of 2% inflation is proudly written in the common
declaration. Inflation is becoming a goal in itself ! And, for that goal, the
BoJ will keep its base rate at 0% and will buy more and more State bonds,
without any « temporal limits ».
So now the enemy is not the
debt, the budgetary deficit, or a drastic reduction of the balance of
payments... no, it’s deflation, largely imaginary, that is used as a pretext
for more monetization. Tragic.
Shinto Abe continues with a
policy that doesn’t work, with a recovery plan of 20,200 Billion yen (175B
euros). Which will cause more budgetary deficits. Despite the different
governments, Japan keeps going ahead and is going full steam toward a default
or hyperinflation.
