Be Careful What You Wish For: Weaker Yen A Blessing And A Curse For Japan
(thinking they are going to hit this hard again very soon mebby @ 156.xx and why? 2 reasons: inflation really gets scary in their datasets-its the same their as here what they report and reality of what normals peeps see- if they allow currency to devalue and the second too much plus it drives import costs up and that really matter with energy here: to make sure the shorts learn a lesson-they haven’t for years and the reason they call shorting the yen and JGBs is affectionately known as the ‘widowmaker’ trade and it’s because the BoJ has to keep rates low and currency somewhat strong so the BoJ raised rates 1/10th of a % several weeks ago and the press sez “they are now in positive territory” except when you adjust for real inflation they are still well into NIRP (Negative Interest Rate Policy) and will remain there for many years to come. The yen weakening is inevitable but they can put the brakes on it now and again by buying it-as they did $60b worth last week and had help from the NY Federal Reserve)
A weaker yen will boost inflation in Japan, but it may do so to an undesirable extent, especially as there are growing signs price growth is becoming embedded.
Be careful what you wish for. For years, Japan has yearned for sustainable inflation around 2% (the same unobtainable level as our FRB) Add a pandemic, a rise in energy prices (and they have to import 97-8% of that-and one of the biggest importers of LNG globally) one of the most extensive and long-lasting loose monetary policies seen in the history of global central banking, and it may have got there. (Many don’t know but it was actually the Danes who started the most recent period of ZIRP beating Japan by a few months). However, stopping inflation at the right level is a bit like turning a cargo ship: you have to make the decision to turn long before you need to. Headline inflation in Japan is coming off recent highs, helped by subdued oil prices. But so-called core-core CPI (ex-fresh food and energy-again same as here because no one uses any of that /s) is proving worryingly stubborn, still hovering within ~0.5% points of its all-time highs.
There are further signs of inflation becoming embedded. The percentage of inputs to the CPI basket (with over 650 of them, there is a Byzantine level of detail) rose to by far its highest level outside a consumption tax hike and remains elevated.
BOJ Governor Kazuo Ueda has been on the wires today, highlighting that FX is a vital factor effecting inflation. He is not wrong.The recent yen weakness will soon pressure CPI to move higher again.That’s at a time that longer-term inflation expectations are rising, based on the Tankan survey of businesses on output prices. Long-term household expectations of inflation are also sticky and near series highs. Japan has not had to deal with persistently high inflation expectations almost within living memory. Ueda also highlighted the negative effects on the economy from an abrupt, one-sided weak yen. More pernicious is likely to be the further rousing of inflation that’s already looking like it’s going to be the gift to the BOJ that gives too much.
https://www.zerohedge.com/markets/be-careful-what-you-wish-weaker-yen-blessing-and-curse-japan
https://tradingeconomics.com/japan/currency
https://tradingeconomics.com/japan/government-bond-yield
Cap 2 is muh yen/US$ on 1 month view. The data here goes back to 1972 and the low was just under tree-fiddy Nov 1972. I think it’s all time low was mid 350 range but don’t hold me to that.
Cap 3 is JGB 10y 6month view