The Big Yawn
Evidently, the markets firmly expected Shinzo Abe's LDP to win the upper house election, as neither the Nikkei index, nor the bond or currency markets showed much of a reaction to the actual event. The 10-year JGB has in the meantime risen back above an important short term resistance level, so no major disruptions are in evidence on that particular front yet.
As to Abe's economic program, it remains to be seen if he manages to implement anything reform-wise beyond the current program of inflation and even more government spending. There has been a lot of talk about reform; for instance, Japan's labor legislation is just as sclerotic as that in many European nations and urgently in need of an overhaul. But nothing has come yet from this talk. Besides, Abe' true priorities are probably elsewhere: he primarily wants to push through his nationalistic plans.
A daily chart of the 10 year JGB price. For now, it is back above the 143 level that previously served as both support and resistance – click to enlarge.
The Nikkei produces an uneventful inside day in the wake of the upper house election – click to enlarge.
BoJ's Sato: Ready to Inflate More
Meanwhile, one of the BoJ's board members, Takehiro Sato, let it be known that the BoJ stands ready to inflate even more if any 'tail risks' should materialize. Apparently he's worried by the slowdown in China. Meanwhile, China's new leadership seem to be looking askance at monetary inflation and fiscal stimulus, at least for the moment. Sato is apparently considered one of the BoJ members more 'cautious' on the economic outlook. That presumably means that he is more adventurous with regard to inflationary policy.
“The Bank of Japan is prepared to inject more stimulus if the economy's recovery is threatened, board member Takehiro Sato said on Monday as he pointed to risks such as the slowdown in Chinese growth.
He also said the central bank's 2 percent inflation target was a flexible one that does not necessarily have to be achieved rigidly in two years — a timeframe that had been outlined by BOJ Governor Haruhiko Kuroda.
Sato, an economist who joined the BOJ board last year, said Japan was headed for a sustainable recovery as household sentiment and exports improve, but he was concerned about slowing growth in China and other emerging economies.
[...]
"The BOJ does not exclude the implementation of additional measures and will not hesitate to fine-tune its policies flexibly when unexpected tail risks materialize," he said in a speech to business leaders in Fukushima, northeastern Japan.
Sato, considered to be among those more cautious on the economy's outlook on the nine-member board, has doubts that 2 percent inflation can be specifically achieved in two years, and said there should be some flexibility in interpreting it.
"If the inflation rate is projected to stabilize within a certain range with the median being 2 percent price growth, the main objective of the BOJ's policy will have been fulfilled," he said.
Many private-sector analysts also see the BOJ's two-year timeframe as too ambitious for a country mired in deflation for 15 years. Sato said annual consumer inflation rate will likely turn positive in the summer, partly due to rising electricity bills and the weak yen that inflates the cost of energy imports.
(emphasis added)
Once again, one is left to shake one's head in astonishment. What on earth can possibly be gained from rising electricity bills and inflated costs of energy imports due to the weak yen? That such assertions are left completely unchallenged by Sato's audience as well as the press is slightly depressing. Why is no-one asking him what he hopes to gain by making life more expensive for Japan's citizens? It seems patently obvious what an absurd plan this is, and yet, common sense is apparently in very short supply. In an interesting development underscoring Japan's demographic problem, the number of shoplifters aged 65 or older has for the first time surpassed the number of teenaged shoplifters.
The yen meanwhile was unimpressed and has so far held above the higher low put in earlier this month:
Yen-dollar (inverse notation), September contract, daily: the yen's higher low from early July has so far held – click to enlarge.
Conclusion:
Now that Abe is in firm control of both houses of parliament, nothing stands in the way of his cunning plan to make Japan richer by making it poorer. Japan's neighbors meanwhile are probably dreading his militarism and nationalism, which is likely to come to the fore now.
BoJ board member Takehiro Sato: ready to inflate even more.
(Photo via Reuters / Yuriko Nakao)
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