Hato No Naka No Neko (ハトの中の猫)
By Grant Williams
November 11, 2014
“To sum up what is most crucial in Japanese political culture: the Japanese have never been encouraged to think that the force of an idea could measure up to the physical forces of a government. The key to understanding Japanese power relations is that they are unregulated by transcendental concepts. The public has no intellectual means to a consistent judgment of the political aspects of life. The weaker, ideologically inspired political groups or individuals have no leverage of any kind over the status quo other than the little material pressure they are sometimes able to muster. In short, Japanese political practice is a matter of ‘might is right’ disguised by assurances and tokens of ‘benevolence.’”
“Living in a world such as this is like dancing on a live volcano.”
As shocks go, this one — though it had been fairly well-telegraphed to the markets that something wicked this way might be coming — was in a league of its own.
I’m sure that by now you’re well aware of what Kuroda-san (the Governor of the Bank of Japan) announced to the world; but in case you’re not, here’s a little recap:
An Austrian economist!” And in the ensuing panic, he slipped a bunch of freshly minted chips from a secret pocket in his jacket onto the table and, once calm had returned, went all-in again.
So doing, it has generated the greatest frontrunning frenzy ever recorded.
As you can see, stocks have exploded in Japan since the beginning of Abenomics, rising 41.6% in just 19 months — but it wasn’t a straight line. Initially, after a 30% surge, the doubts set in and the Nikkei retraced most of its gains before beginning a long grind higher as investors reluctantly bought into the idea that Abenomics might
The second chart that folks care about in the wake of the BoJ’s moves is this one, the yen:
Again, as you can clearly see, QE10 and now QE11 jumpstarted the yen. (Are you paying attention, Janet? Do you think for a second that when the BoJ announced QE1, it was as the first installment of a cunning 11-part plan to be implemented over a couple of decades?)
However, the fact that everybody got “long the Nikkei” and everybody got “short the yen” when Abenomics’ first arrow was fired is the wrong reason to be cheering Kuroda’s interference in the natural forces that used to drive markets.
The reason it is the greatest trade ever is because you literally have unlimited upside. JPY can infinitely weaken. The stock market can go infinitely high....
Orrrr... perhaps that relatively unimportant macroeconomic datapoint, GDP:
Then there are the places my friend Paul Mylchreest of ADM ISI looked at this week in an excellent piece that landed in my inbox — places like real Japanese household incomes:
And then of course there are the twin charts from my presentation at the Strategic Investment Conference back in May: Japan’s trade balance and current account (updated here
So the simple truth is this:
Let’s face it, if you are Japan and a chart like the one below doesn’t have a significant positive effect on your exports, something is structurally wrong — and structural change is not something the Japanese like (or do):