Japan traditionally bought $ and built it’s fx reserves to support its exporters.

It was finally Tsy Sec. Paulson who shamed them into suspending their $ purchases by calling Japan, China, and others ‘outlaws’ and ‘currency manipulators’ in what was then, functionally, an attempt at a ‘weak dollar’ policy.

The current administration, however, is on the defensive with regards to the dollar, under attack from political adversaries for allowing the Fed to ‘print money’ and ‘debase the currency’ even as the dollar has been reasonably strong.

So Japan has been testing the waters first with an announced ‘one time’ intervention in response to the earthquake, which didn’t attract the name calling of the prior US administration, and now with the announcement of ongoing intervention.

Seems to me its highly unlikely the US administration will respond negatively which would support their opposition’s ‘currency debasing’ labeling. So I expect Japan to continue to sell yen in an orderly fashion at least until they strike a US nerve.

Japan Adopts Stealth Intervention as Yen Gains Hurt Growth

By Monami Yui and Shigeki Nozawa

Feb 7 (Bloomberg) — Japan used so-called stealth intervention in November as the government sought to stem yen gains that hammered earnings at makers of exports ranging from cars to electronics.

Finance Ministry data released today showed Japan conducted 1.02 trillion yen ($13.3 billion) worth of unannounced intervention during the first four days of November, after selling a record 8.07 trillion yen on Oct. 31, when the yen climbed to a post World War II high of 75.35 against the dollar. The currency’s strength has eroded profits at exporters such as Sharp Corp. and Honda Motor Co., just as faltering global growth undermines demand.

“Japan has clearly shown its intention to stop a further appreciation of the yen, and there is a high chance” for more yen selling, said Hideki Shibata, a senior strategist for rates and foreign exchange at Tokai Tokyo Research Center Co. “Caution against intervention has increased in markets.”

November’s unannounced yen sales were the most effective strategy to weaken the currency, said a Japanese official who spoke to reporters in Tokyo today on condition of anonymity. Finance Minister Jun Azumi said he won’t rule out any options to curb the yen’s appreciation and that he will take action whenever necessary.

Exporting ‘Nearly Impossible’

His comment came a week after Sharp, Japan’s largest maker of LCD panels, forecast its worst annual loss since its founding a century ago, with its president saying exporting is “nearly impossible” with the strong yen. Panasonic Corp., Japan’s biggest appliance maker, forecast a 780 billion yen loss, the worst since the Osaka-based company was established in 1918.

Honda, the nation’s third-largest automobile maker, forecast on Jan. 31 net income for the 12 months ending March will decline to a three-year low of 215 billion yen. The company estimates its operating income is cut by 15 billion yen for every one yen gain against the dollar.

The Bank of Japan last month lowered its forecast for economic growth to 2 percent in the year starting in April from an October estimate of 2.2 percent, citing a slowdown overseas and the stronger yen.

The U.S. Treasury Department criticized Japan in a December report for unilaterally selling its currency in August and October, saying the Asian nation should focus on steps to “increase the dynamism of the domestic economy.” Intervention is an option if the yen moves excessively, Naoyuki Shinohara, a deputy managing director at the International Monetary Fund, said in an interview in Tokyo on Feb. 3.

U.S. Criticism

“Coming under growing criticism from overseas, Japan couldn’t openly intervene in the markets,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “Japan had to choose stealth intervention from the very few options to deal with increasing pressure within the country.”

Intervention is defined as “stealth” when it’s done without any finance ministry announcement, he said.

The yen sale in October was the biggest intervention on a monthly basis in data going back to 1991, while sales totaled 14.3 trillion yen in 2011, the third-largest annual amount, ministry data also showed.

No New Tactics

“We do not believe that the intervention over a period of several days by Japanese authorities signals a significant shift in tactics compared to previous interventions,” Osamu Takashima, Issei Suzuki and Todd Elmer, foreign-exchange strategists at Citibank Japan Ltd. in Tokyo, wrote in a note to clients today. “Investors may be inclined to sell into any renewed bout of intervention on USDJPY on a breakdown beneath recent range lows.”

The first intervention of 2011 was a 692.5 billion yen sale on March 18, when the Bank of Japan led a coordinated effort with Group of Seven nations to counter a jump in the yen after a record earthquake struck Japan a day earlier, stoking speculation companies would repatriate overseas assets to pay for rebuilding. Current Prime Minister Yoshihiko Noda, who was finance minister at the time, ordered the nation’s central bank to intervene again unilaterally on Aug. 4.

The yen reached 76.03 per dollar on Feb. 1, the strongest since Oct. 31. It traded at 76.72 as of 2:33 p.m. today in Tokyo.

THEN they’ll be the next Greece…

Japan Sees Its Public Debt Exceeding A Quadrillion Yen Next Year

Jan 26 (Bloomberg) — Japan’s Finance Ministry said the country’s public debt will probably exceed a quadrillion yen for the first time next year, adding pressure on Prime Minister Yoshihiko Noda to raise taxes to restore the nation’s finances.

Good luck to them:

Prime minister Yoshihiko Noda told parliament that he will move to double sales tax to 10pc, saying the future of the world’s third-largest economy depends on tackling its massive public debt.

Mr Noda said the country has “no time to spare” in cutting its fiscal burden.

“It’s impossible for young people to believe that things will get better tomorrow in a society where debts resting on future generations continue growing,” he said. “It is not too much to say that the revival of hope of the entire society depends on the success of this combined reform.”

Japan Fiscal Pressure Rises as Tax Increase Not Enough

By Mayumi Otsuma

Jan 24 (Bloomberg) — Japan’s government said it will probably miss its goal of balancing the budget by 2020 even with its proposed doubling of the sales tax, underscoring the scale of the nation’s fiscal challenges.

The primary budget deficit, which excludes the cost of servicing debt, will be the equivalent of 3.1 percent of gross domestic product for the year through March 2021, the Cabinet Office said in Tokyo today. Hours after the release, Prime Minister Yoshihiko Noda reiterated his call for opposition lawmakers to engage in talks on boosting the sales levy.

Addressing the shortfall through faster growth may be a limited option for Japan, where the central bank has already cut the key interest rate near zero and the traditional boost from a trade surplus last year evaporated — for the first time since 1980. Absent structural changes that boost incentives to spend and invest, today’s report signals further fiscal tightening will be needed to rein in the world’s largest public debt.

“To balance the budget, the rate needs to rise further,” said Takuji Okubo, chief Japan economist at Societe Generale SA in Tokyo, referring to the sales-tax level. “We’ve passed the point where we can soft-land the fiscal situation. The question is how hard the landing is going to be.”

For another example of really bad analysis from the IMF (2011), see:

“ Raising the Consumption Tax in Japan: Why, When, How?”

http://www.imf.org/external/pubs/ft/sdn/2011/sdn1113.pdf

Some quotes from the summary:
“ [IMF] Staff analysis reported here suggests that a gradual increase in the consumption tax [in Japan] dfrom 5 percent to 15 percent over several years—a level that is still modest by OECD standards—could provide roughly half of the fiscal adjustment needed to put the public debt ratio on a downward path within the next several year.”

“Experiences elsewhere, as well as the specific circumstances of Japan, suggest that the strategy for raising the consumption tax be guided by the “four Ss”—it should start Sooner rather than later, be raised by Stepwise increases, Sustained for some time, and retain the very Simple current structure of the consumption tax: [….]”

“Japan’s experience in raising the consumption tax will set an important example for other countries.”

My comments: (1) The IMF staff has not learnt anything from Japan’s own experience in raising tax rates of later 1990s and early 2000s. (2) Start sooner = in the middle of a recession!

Tanweer Akram

And, unfortunately, they are acting accordingly, ensuring another lost decade and further destruction of their culture.

Azumi: Not Immune To Europe-Style Fiscal Crisis

By Kelly Olsen

Jan 18 (Dow Jones) — Finance Minister Jun Azumi said Wednesday that Japan is not immune to a euro-zone style fiscal crisis and that the government is “resolved” to raise the consumption tax to improve the nation’s finances.

Japan is “no exception,” Azumi said during a speech at the Foreign Correspondents’ Club of Japan, referring to the crisis in Europe in light of Japan’s own high debt levels.

Azumi said that although yields on Japanese government bonds are currently low, rates can quickly rise to “cause problems.”

“We cannot avert our eyes” from the problem of Japan’s outstanding debt, he said, which at around 200% of gross domestic product is the highest in the industrialized world.

Azumi said the government is resolved to raise the consumption tax rate to help bring the country’s finances under control, but acknowledged the difficulties in getting the legislation passed, saying it is “like climbing Mt. Everest.”

Prime Minister Yoshihiko Noda aims to submit legislation to double the tax to 10% by 2015 to a parliamentary session set to begin next week, though the unpopular move is opposed by opposition parties and has sparked defections from Noda’s ruling Democratic Party of Japan.

.

Imagine being on the FOMC and in the mainstream paradigm

In 2008 you moved quickly to make sure the US would not become the next Japan

You cut rates to 0, even faster than Japan did.

You provided unlimited liquidity to the dollar money markets,
both home and abroad.

You did trillions of QE, sooner than Japan did.

You announced you expected rates to stay down for two years.

etc. etc. etc.

And what do you have to show for it, 3 years later?

GDP marginally positive, much like Japan
Inflation working its way lower to Japan-like levels, especially housing and wages.
Employment stagnant a la Japan.

And now, after 3 years of 0 rates, and trillions of QE, the dollar is going up, much like the yen did.
After the Fed has done all it could think of to reinflate, and then some.

And all just like MMT suspected.
And for what should be obvious reasons.

Noda’s ‘Urgent’ Task Is Tax Rise as Japan Debt Load Swells

Dec 26 (Bloomberg) — Prime Minister Yoshihiko Noda’s next task is securing support for a higher sales tax after Japan’s budget for the next fiscal year showed a record dependence on borrowing to fund government spending.

The government will sell 44.2 trillion yen ($566 billion) of new bonds to fund 90.3 trillion yen of spending, raising the budget’s reliance on debt to an unprecedented 49 percent, a plan approved by the Cabinet in Tokyo on Dec. 24 showed. While spending will decrease for the first time in six years, Noda will delay funding the nation’s pension fund and will create a separate budget account to pay for earthquake reconstruction.

An aging population and two decades of low growth after an asset bubble popped in the early 1990s have left Japan with debt projected at a record 1 quadrillion yen this fiscal year. Noda faces opposition from the public and within his Democratic Party of Japan to increasing the levy even as Standard & Poor’s considers further cutting the nation’s credit rating, reduced in January to AA-.

“The government should hike the consumption tax rate and cut social security spending as soon as possible,” said Masaaki Kanno, chief economist at JPMorgan Chase & Co. and a former Bank of Japan official. “This is urgent. We do not have the luxury of losing any more time.”

About 53 percent of voters oppose an increase, with a third saying Noda should call an election before such legislation, news service Jiji Press said last week, citing a Dec. 9-12 survey of 2,000 people. The DPJ lost its majority in the upper house of the parliament last year after then-Prime Minister Naoto Kan campaigned on a pledge to cut spending and raise the 5 percent sales tax.

‘Constituents’ Purses’

DPJ lawmakers with weak electoral majorities may be “tempted to vote for their constituents’ purses” by opposing an increase, said Jun Okumura, a former Japanese trade ministry official and a consultant at the Eurasia Group risk consulting firm in Tokyo.

While Japan’s gross domestic product grew an annualized 5.6 percent in the three months ended September as demand picked up after the March 11 earthquake, the pace will probably slow. The median estimate of 11 economists surveyed by Bloomberg News is for growth of 0.42 percent this quarter. Of the 10 polled this month, five predict GDP will shrink.

Gains in the yen are weighing on growth by eroding exporters’ profits, a factor cited by Moody’s Investors Service in cutting the rating outlook for Toyota Motor Corp. on Dec. 22. Europe’s debt crisis is reducing demand for the nation’s products, while earthquake reconstruction costs will swell spending. The yen traded at 78.09 per dollar on Dec. 23 after touching a post-World War II high of 75.35 on Oct. 31.

Sales Tax Plan

Noda’s party will today present a plan for raising the sales tax, lawmaker Shinichiro Furumoto said last week. The ruling coalition plans to raise the rate to 8 percent in October 2013 and 10 percent in 2015, Kyodo News reported Dec. 21, citing government sources.

The International Monetary Fund says a gradual increase to 15 percent “could provide roughly half of the fiscal adjustment needed to put the public-debt ratio on a downward path.” Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo, advocates boosting the tax to “at least” 20 percent.

‘Not Normal Times’

Former DPJ leader Ichiro Ozawa and Shizuka Kamei, the head of the People’s New Party, a coalition partner, aim to head off the move. Kamei said this month that “we’re not in normal times, and it’s folly to be playing around with the tax system.”

So far, Japan’s debt burden hasn’t impeded the government’s ability to borrow, with 10-year bond yields poised to close below 1 percent for the first year since 2002.

Noda’s spending plan for the year starting April includes a 3.8 trillion yen special account for reconstruction spending.

Besides the consumption tax, a government panel proposes increasing the highest personal income tax rate to 45 percent from 40 percent by the middle of this decade.

“Japan’s government is proposing the right remedies for the country’s fiscal debt problems, but the speed is too slow and we can’t be confident that the measures will actually be implemented,” said Hitoshi Suzuki, a senior researcher of Daiwa Institute of Research in Tokyo.

Tokyo-based Ratings & Investment Information Inc. cut Japan’s rating for the first time on Dec. 21. S&P has a negative outlook for the nation and said last month that a downgrade may be getting closer after insufficient progress in tackling a public debt burden that is the world’s biggest.

Japan’s structural deficit “is completely out of whack because of increasing social security demands and costs,” Schulz of Fujitsu said last week. “If the government remains lazy in terms of hiking the consumption tax rate, it’s just a matter of time before the very obedient Japanese investors are no longer happy to finance the deficit.

This is peculiar.
This supports the yuan vs the yen,
supporting Japan’s exports to China.

Could be more evidence of China’s inflation concern?

Japan To Buy Chinese Govt Bonds Under Bilateral Pact

TOKYO (Nikkei) — Japan will likely purchase yuan-denominated bonds issued by the Chinese government under a proposed bilateral currency and financial agreement, The Nikkei learned Monday.

Japanese and Chinese officials are working out plans to have the pact signed when their leaders meet for a summit this coming Sunday. The agreement will be pillared on the purchase of Chinese government bonds using Japan’s foreign exchange fund special account, along with the joint establishment of a green investment fund.

Japan seeks to diversify its forex fund special account, which now focuses on dollar investments. It also aims to strengthen economic cooperation with China by supporting that nation’s efforts to turn the yuan into a more international currency.

The bond purchases may total up to 10 billion dollars’ worth, or roughly 780 billion yen, with buying carried out in stages through the special account.

The Chinese government counts Japanese government bonds among its foreign-currency reserves. Through cross-holding of bonds, Japan and China will be better poised to exchange information on financial developments in the bond market and elsewhere.

The Japanese government also plans to aid Chinese efforts to nurture an offshore market for yuan-denominated transactions.

The proposed joint fund for environmental investment would feature the participation of the Japan Bank for International Cooperation and private-sector companies from the Japanese side. Details of the fund’s size and investment percentages are to be fleshed out in the near future.

Thailand and Nigeria are among the countries that hold yuan-denominated government bonds through their central banks. Tokyo and Beijing believe that having a developed nation like Japan maintain a certain amount of yuan-denominated holdings may help lift the Chinese currency’s standing on the international stage.

China’s government bond offerings totaled 1.4 trillion yuan in 2009, up 55% on the year.

Such issuances have recently increased in Hong Kong. Overseas investors can acquire government bonds issued on the mainland, but regulations — including a ceiling on purchase amounts — remain strict. top

China Bond Purchases Could Help Ties: Finance Minister

Japan To Buy Chinese Govt Bonds Under Bilateral Pact

TOKYO (NQN) — Finance Minister Jun Azumi on Tuesday confirmed a report that Japan is considering buying Chinese government bonds, arguing that such purchases will offer the two countries significant advantages while strengthening bilateral economic ties.

At a news conference after a Cabinet meeting, Azumi said Japan should hold yuan-denominated bonds as a means of strengthening diplomatic relations.

Azumi said no official decisions have been made on the matter, and that Tokyo will discuss the issue at a future Japan-China summit. He also suggested that the two nations may be able to strike an agreement when Prime Minister Yoshihiko Noda visits China.

REUTERS POLL: 61 PCT OF JAPAN BIG FIRMS VERY WORRIED JAPAN MAY FACE EUROPE-LIKE DEBT CRISIS IN NEAR FUTURE

In case you thought those big firms understood the monetary system.

With the tools currently at their immediate disposal, including providing unlimited member bank liquidity,lowering the interbank rate, and buying euro national govt debt, the ECB has no chance of causing any monetary inflation, no matter how hard it might try. There just are no known channels, direct or indirect, in theory or practice, that connects those policies to the real economy. (Note that this is not to say that removing bank liquidity and national govt credit support wouldn’t be catastrophic. It’s a bit like engine oil. You need a gallon or two for the engine to run correctly, but further increasing the oil in the sump isn’t going to alter the engine’s performance.)

Lower rates sure doesn’t do the trick. Just look to Japan for going on two decades, the US going on 3 years, and the ECB’s low rate policies of recent years. There’s not a hint of monetary inflation/excess aggregate demand or inflationary currency weakness from low rates. If anything, seems to me the depressing effect on savers indicates low rates from the CB might even, ironically, promote deflation through the interest income channels, as the non govt sector is necessarily a net receiver of interest income when the govt is a net payer. (See Bernanke, Reinhart, and Sacks 2004 Fed paper on the fiscal effect of changes in interest rates.)

And if what’s called quantitative easing was inflationary, Japan would be hyperinflating by now, with the US not far behind. Nor is there any sign that the ECB’s buying of euro govt bonds has resulted in any kind of monetary inflation, as nothing but deflationary pressures continue to mount in that ongoing debt implosion. The reason there is no inflation from the ECB bond buying is because all it does is shift investor holdings from national govt debt to ECB balances, which changes nothing in the real economy.

Nor does bank liquidity provision have anything to do with monetary inflation, currency depreciation, or bank lending. As all monetary insiders know, bank lending is never reserve constrained. Constraints on banking come from regulation, including capital requirements and lending standards, and, of course credit worthy entities looking to borrow. With the ECB providing unlimited liquidity for the last several years, wouldn’t you think if there was going to be some kind of monetary problem it would have happened by now?

So the grand irony of the day is, that while there’s nothing the ECB can do to cause monetary inflation, even if it wanted to, the ECB, fearing inflation, holds back on the bond buying that would eliminate the national govt solvency risk but not halt the deflationary monetary forces currently in place.

So where does monetary inflation come from? Fiscal policy. The Weimar inflation was caused by deficit spending on the order of something like 50% of GDP to buy the foreign currencies demanded for war reparations. It was no surprise that selling that many German marks for foreign currencies in the market place drove the mark down as it did. In fact, when that policy finally ended, so did the inflation. And there was nothing the central bank could do with interest rates or buying and selling securities or anything else to stop the inflation caused by the massive deficit spending, just like today there is nothing the ECB can do to reverse the deflationary forces in place from the austerity measures.

So here we are, with the ECB demanding deflationary austerity from the member nations in return for the limited bond buying that has been sustaining some semblance of national govt solvency, not seeming to realize it can’t inflate with its monetary policy tools, even if it wanted to.

Post script:

The only way the ECB could inflate would be to buy dollars or other fx outright, which it doesn’t do even when it might want a weaker euro, as ideologically they want the euro to be the reserve currency, and not themselves build fx reserves that give the appearance of the euro being backed by fx.

Japan’s Hidden Jobless Hits 4.69mn, Worse Than After Lehman Shock

November 16 (Nikkei) —The number of Japanese that want to work but are not actively seeking employment has surpassed levels from after the global financial crisis erupted, according to government data released on Tuesday.

Some people have given up searching for work because they believe that the jobs they desire are not available. Known as hidden unemployment, such individuals are not reflected in official unemployment statistics, which cover those actively hunting for jobs by going to employment centers, for example.

The hidden jobless in Japan jumped by 190,000 from a year earlier to 4.69 million in the July-September quarter, excluding the three prefectures hit hardest by the March 11 disaster, the Internal Affairs Ministry said.

The figure is nearly 70% larger than the number of officially unemployed people. It is also higher than the 4.61 million in the July-September quarter of 2009, when the employment market deteriorated sharply after the financial crisis.

Of the hidden jobless, the number of women grew by 60,000 while men surged by 130,000. Asked why they are not seeking work, more people replied that there are no jobs that match their skills or their desired conditions such as pay and work hours. The strong yen and concerns over power shortages are seen as factors resulting in a dearth of openings for good jobs.

The number of unemployed people fell 430,000 on the year to 2.77 million for the July-September quarter, excluding the three disaster-hit prefectures. Of this figure, those that have been out of work for at least a year declined by 190,000 to 1.03 million, down for the second straight quarter. While this suggests that fewer people are without work over the long term, some may have exited the employment market by giving up on the job search.

>   
>   (email exchange)
>   
>   On Sat, Nov 12, 2011 at 2:19 PM, Stephanie wrote:
>   
>   John Carney loving on us again

Yes!

Paul Krugman Goes MMT on Italy

By John Carney

November 11 (CNBC) — It seems pretty clear that the school of thought known as Modern Monetary Theory has made a big impact on Paul Krugman’s thinking.

As Cullen Roche at Pragmatic Capitalism points out, just a few months ago the spread between bonds issued by Japan and Italy, which have similar debt and demographic issues, was perplexing Krugman.

“A question (to which I don’t have the full answer): why are the interest rates on Italian and Japanese debt so different? As of right now, 10-year Japanese bonds are yielding 1.09%; 10-year Italian bonds 5.76%.

…I actually don’t have a firm view. But it seems to be an important puzzle to resolve.”

But today’s column is basically right out of MMT.

“What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of Third World countries that have to borrow in someone else’s currency, with all the loss of flexibility that implies. In particular, since euro-area countries can’t print money even in an emergency, they’re subject to funding disruptions in a way that nations that kept their own currencies aren’t — and the result is what you see right now. America, which borrows in dollars, doesn’t have that problem.”

Utter failure of policy.

The Fed was certain it knew what Japan had done wrong and wasn’t going to make THOSE mistakes.

So it

Cut rates much more aggressively.

Said it would do whatever it takes.

Figured out how to do its job as liquidity provider after only 6 months of alphabet soup programs.

Did heaps of Quantitative Easing.

Did the twist.

And now, realizing its done about all it can do, says monetary policy can’t do it all.

And still fails to recognize publicly the actual problem is the budget deficit is way too small.

And doesn’t directly inform Congress that

there is no such thing as a solvency problem,

the Fed controls government interest rates, and not the market,

there is no long term deficit problem with regards to finance,

the only thing we owe China is a bank statement,

Quantitative Easing and rate cuts remove interest income from the economy, which allows the deficit to be that much larger,

etc.

as we continue to go the way of Japan.

Karim writes:

Some improvement around the edges but the larger narrative is employment rising only at a rate fast enough to keep the unemployment rate stable (not higher or lower)

The world’s poster child for losing decades looks to stay a step ahead:

(Nikkei)–Prime Minister Yoshihiko Noda vowed Thursday to gradually raise the nation’s consumption tax to 10% by mid the 2010s during a summit meeting of the Group of 20 leading economies in Cannes, France.

The announcement at the summit has effectively made the tax hike an international pledge, and is expected to be included in an action program due out Friday.

Noda stressed the importance of rebuilding debt-ridden Japanese finances and told G-20 leaders that fiscal consolidation is a must “for Japan to be put back on a sound economic growth path, regardless of the debt crisis in the euro zone.”

He also spoke to reporters that a Diet dissolution should be carried out before implementing the tax hike. “If we go to the people in a general election (to seek a mandate on the consumption tax hike), we should do so after passing related bills but before implementing them,” he said.

As to Japan’s participation in the Trans-Pacific Partnership free trade pact, Noda told reporters he will accelerate efforts to iron out differences within the Democratic Party of Japan, which he leads. “We have to close ranks and shouldn’t be split,” he said.

Noda showed his flexibility in making concessions to a controversial redemption period of reconstruction bonds aimed at funding rebuilding efforts of the March 11 disaster, in hopes of enlisting support from the Liberal Democratic Party and New Komeito, the main opposition parties.

“Our policy chief said that we envisage a 15-year period (for the redemption of reconstruction bonds), but there’s room for concessions,” he said.

As discussed last week, the latest euro package just announced is unravelling quickly as markets again realize there is no actual substance, and no operational path with regards to carrying any of it out. So things will deteriorate as described until markets again force further ‘action.’

At the same time, the austerity continues to weaken the euro economies, with Q4 potentially going negative, driving deficits that much higher in the process.

The ‘answer’ remains the ECB writing the check, which they’ve sort of seemed to recognize, but they remain (errantly) concerned that reliance on the ECB is inherently inflationary, and thereby violates the ECB’s mandate for price stability. So it won’t happen until things again get bad enough to force it to happen.

The catastrophic risk remains a failure, when push comes to shove, to allow the ECB to write the check as they have been doing to allow it all to muddle through.

The range of outcomes couldn’t be wider. Write the check and not much happens, don’t write the check and there is unthinkable collapse.

Meanwhile, the 1% running the US looks to be trying to take the lead in the global austerity race to the bottom as the Democrats in the super committee on deficit reduction have led off by proposing a $4 trillion deficit reduction package.

Toss in West Texas crude prices heading to Brent levels of about $110/barrel as the strategic petroleum reserve release winds down over the next three weeks and the looks to me like the US consumer crawls back into his foxhole just in time for the holiday season.

Not to mention Japan now darning the torpedoes and buying dollars to take back a bit of the export market they lost by kowtowing to former tsy sec paulson’s demands to not be a ‘currency manipulator’ in the context of still weakening global demand in general.

The number one threat to world order remains a failure to sustain demand. The good news is sustaining aggregate demand is a simple matter once the monetary system is understood. The bad news is there seems to be no one of authority who doesn’t have it all backwards.

The modern day saga of the Trojan Horse continues.
as the euro debt crisis gives Japan the cover to do something
otherwise highly problematic.

Japan buying euro zone debt is a way to bolster the euro vs the yen
and thereby support Japan’s exporters.

Fujimura Says Japan May Boost Europe Bailout Bond Purchases

October 5 (Bloomberg) — Japan may increase its purchases of bonds to finance Europe’s debt crisis rescue fund, Chief Cabinet Secretary Osamu Fujimura said.

Fujimura told reporters today in Tokyo the government “would like to consider” buying more bonds from the European Financial Stability Facility to help stabilize the region. Japan bought more than 20 percent of the fund’s initial five-year, 5 billion euro ($6.6 billion) bonds in January, and purchased another 1.1 billion euros of 10-year EFSF bonds issued in June.

“Europe’s fiscal problem is also very important for Japan in terms of restoring market confidence, and the Europeans are grappling with this,” Fujimura said.

This spending does add net financial yen denominated assets to the private sector:

Japan DPJ Policy Chief Maehara: Government, DPJ Agree On Third Extra Budget

By Kosaku Narioka

September 27 (Dow Jones) — The Japanese government and the ruling Democratic Party of Japan agreed on the third extra budget, totaling about Y12 trillion, for the fiscal year ending March 2012, the DPJ policy chief Seiji Maehara said Tuesday.

Under the plan, non-tax revenue amounts to Y7 trillion, he said. The government is going to sell all Japan Tobacco Inc. (2914.TO) shares it owns to generate part of the revenue, he said.
The government is planning to issue reconstruction bonds and is going pay them off in 10 years or longer, he said.

Noda, who was finance minister in the previous Cabinet, said he is ready to intervene in foreign exchange markets if necessary and promised that tax increases to fund the rebuilding of the disaster-stricken areas will not take place before cutting more wasteful spending of taxpayers’ money.

But he said it would be inevitable to raise some kinds of core taxes if the government still finds that there is a shortage of funds for the reconstruction work after all its efforts.

Bet they’re sorry now for all that deficit spending, two decades of 0 rates, and untold QE ‘money printing’- inflation is finally ripping!

Not

July CPI Shows 1st Increase In 2.5 Years

May 25 (Dow Jones) — Japan’s core consumer price index rose 0.1% in July from a year earlier for the first time in two and a half years, despite a revision to the data’s base year giving a downward bias to the index, government data showed Friday.

The outcome was higher than the median forecast for a 0.1% drop in a poll of economists surveyed by Dow Jones and the Nikkei. The index declined 0.2% from a year earlier in June.

Core CPI for the Tokyo metropolitan area–an early indicator of price trends for the rest of Japan–fell 0.2% on year in August, compared with a forecast 0.1% fall. In July, it declined 0.1%.

The results came after the government changed the data’s base year to 2010 from 2005, which was expected to produce a lower-than-usual figure.