The central bank buys up the government's outstanding debt at zero interest, removing external holdings of debt, while punishing the Yen and anyone holding Yen assets in the process. For the government it becomes a low cost approach to cancelling out debt. For the people of Japan, it becomes a stealth inflation attack on their standard of living. The choices are slim though, they already have high taxes, and the national savings rate has dropped from high to nearly zero (formerly the people of Japan funded the big debt binge with the high savings rate).
It's the next level up from what the Fed was doing with QE. The Fed - supposedly - will sell a lot of its assets back into the market. The central bank of Japan plans to just buy up its own debt and cancel it perpetually. The Bank of Japan owns something like 43% of the Japanese Government's debt at this point.
You can almost guarantee the US Government & Fed will do the same thing in the next ~15 years, as US public debt hits $30+ trillion. If the US wanted to push its debt interest costs toward zero over time, it could have the Fed start buying up all the public debt. The cost would be debasement of the USD (the dollar would fall, commodities would soar, the US standard of living would fall, real inflation would spike). If you want a functioning market for your debt, you have to pay investor's rate of desired interest. You can massage that to some degree, which the Fed does, to try to keep interest costs under control. In Japan's case, they've gone full QE, entirely dropping the pretense of a market for their debt.
It is hard to see as an individual living in Japan because standard of living is not necessarily getting worse due to increase in productivities with some technological improvements. However, Japan's economy relative to the rest of the world is going down. In next 10~20 years, their standard of living will significantly worsen, but they will realize it is to late to fix their economy.
"""The American people have been telling Congress for many years, "Spend more money on us, please," but they have been telling Congress, "Don't raise our taxes." Congress has been listening. It's been spending more money on you, but on the other hand it's been very unwilling to raise taxes. As a result, it has imposed inflation as a tax. That's one tax that you don't have to vote for but you have to pay.""" https://youtu.be/xNc-xhH8kkk?t=1428
"""Well again- with respect to money, can you print money at no cost? It's very cheap to turn out those pieces of paper, but does that get society something for nothing? Not at all, it's simply a different form of taxation. If you print money, people have more money to spend. If they spend more money on the same amount of goods, prices go up, and in effect, everybody is paying a tax through inflation. Once again, it is only a form of taxation."""
It sucks if you have liquid cash, and you are facing inflation. It's great if you are in debt.
Many Americans have a lot more debt then cash.
Things are more complicated than this.
As the country acquires a history of inflation, all the debits become more expensive. Things get worse the longer and the more intense that history becomes.
Japan is spending some trust capital for forgiving their poorest people's debit. Once it is gone, they will have to pay "interest" on the lack of trust, and guess what parcel of the population pays for most of that "interest"?
Besides, most of the benefits from a high inflation don't go into that "debit pardoning" effect. They don't go into the government as a hidden tax either. At the same time, all the costs go into people that have to carry some non interest-paying money, that is, poor people and small business.
Small businesses aren't exactly sitting on piles of cash either. They own or lease assets, and are often net debtors.
The reason small businesses arent doing great at the moment is due to economies of scale, and cost of land - not the loose fiscal policy.
This should explain why governments in America and the EU are under pressure by strong interest groups to avoid inflation at all costs, even though it would help the common people who are in debt and possibly the economy as a whole.
Stealth inflation indeed. In January 2018, the annual inflation rate was 1.4%, a 34-month high. This is an "attack"? (!)
Anyone who thinks Japan's standard of living is under attack, especially when compared to other developed economies, probably hasn't been to Japan.
https://support.wealthfront.com/hc/en-us/articles/210999343-...
Also obligatory, IANACFP, so many grains of salt.
Japan's overall population is already shrinking (not hard to find references) but that masks another trend - population flight to central Tokyo. [0]
So it's best to treat central Tokyo as a separate RE market from overall Japan
[0] https://www.japantimes.co.jp/news/2017/05/08/national/popula...
The overall consequence of their debt relief policies, are causing a significant increase in poverty. I must have read five dozen articles over the last five or six years, covering that, eg:
[2015] "Last year, the Japanese government recorded relative poverty rates of 16%—defined as the share of the population living on less than half the national median income. That is the highest on record. Poverty levels have been growing at a rate of 1.3% a year since the mid-1980s."
https://www.economist.com/news/asia/21647676-poverty-worsens...
Japan has seen a persistent squeeze on their standard of living. Incomes have been stagnant for decades, savings rates have dropped toward zero as people are squeezed on cost of living, and costs have not fallen to offset that.
Economists like to pretend that Japan has been suffering under horrific deflation for decades. That's almost entirely a lie however. They've both been hit by significant Yen devaluation, which is a form of inflation, and seen relatively little actual deflation in terms of the price of goods going down. It's why Tokyo is still one of the most expensive cities on earth, despite Japan's GDP per capita not keeping pace with other wealthy nations.
To the extent you're wholly supplying your own commodities & goods domestically, you can restrain some of the devaluation effect on prices, in regards to making everything more expensive (including real-estate). Inevitably though, even in the best of cases, you end up with cost leakage that impacts your economy. In Japan's case, they're very dependent on imports, so the effect is strong.
In dollar terms, their policies make everything in Japan cheaper. It makes their imports more expensive and it makes their exports generally cheaper. As Japan began this approach, they were occasionally warned about overly aggressive currency devaluation, in terms of getting labeled for it.
If you're a person in Japan, living on the Yen, it doesn't help you at all, other than the very long-term prospect of finally getting out from under the crushing national debt burden. It helps exports some, which can bolster export companies there and the employment picture for anyone working in exports, but the gains are mostly wiped out by the drop in currency value over time. As a USD or Euro holder, I get to buy your Yen products for cheaper, in other words, so you gain zero real ground.
They desperately need to devalue the Yen however, as they currently can't afford to upkeep the vast infrastructure they put into place over a few decades of their big public works programs. So they have to get out from under their debt interest squeeze to free up budget spending for other things that need attention.
All things being equal, a QE program ought to raise real estate prices.
You can get away with light QE. Once you go full QE, to the extent you do it and depending on how long you do it, you'll start to see it destroy the nation's standard of living, eventually collapsing asset prices in real terms.
Fewer people = lower real estate prices.
Herbivore men or grass-eater men (草食(系)男子 Sōshoku(-kei) danshi) is a term used in Japan to describe men who have no interest in getting married or finding a girlfriend. The term herbivore men was also a term that is described as young men who had lost their "manliness". The term was coined by the author Maki Fukasawa in an article published on 13 October 2006.
Surveys of single Japanese men conducted in 2010 found that 61% of men in their 20s and 70% of men in their 30s considered themselves to be herbivores. Japan's government views the phenomenon as one possible cause of the nation's declining birth rate.
According to Fukasawa, herbivore men are "not without romantic relationships, but have a non-assertive, indifferent attitude toward desires of flesh". The philosopher Masahiro Morioka defines herbivore men as "kind and gentle men who, without being bound by manliness, do not pursue romantic relationships voraciously and have no aptitude for being hurt or hurting others."
I know I have a tendency to try and view everything through the lens of WWII, but this really sounds like after the war, the US somehow neutered the entire Japanese culture a little too thoroughly.
Masahiro Morioka argues that Japanese herbivore men are a result of Japan's post-war peace. Since the end of World War II, Japan has not directly participated in any war or conflict, either within its own borders or outside of them. Prior to this time of peace, many Japanese felt that becoming a soldier was the only approach to becoming manly. This social norm has slowly disappeared during the following period of post-war peace. Due to this, Japanese men are less aggressive and this could bleed over into their romantic lives.
Even as late as the '80s, Japanese business culture was notoriously macho and aggressive. When I first read about herbivore men, it was framed largely as a reaction against '80s Japanese business culture more than anything else. I'd be more inclined to argue that herbivore men came out of the recession of the '90s; they saw how the bubble economy collapsed and said "screw this, I don't want any part of it".
I wish I could find that article again.
> With that last statement it all goes bad. They assume that the real problem of fewer workers and more retirees, which is also known as the dependency ratio, can be ‘solved’ by making sure the retirees have sufficient funds to buy what they need. Let’s look at it this way. 50 years from now when there is one person left working and 300 million retired people (I exaggerate to make the point), that guy is going to pretty busy since he’ll have to grow all the food, build and maintain all the buildings, do the laundry, take care of all medical needs, produce the TV shows, etc. etc . etc. So what we need to do is make sure those 300 million retired people have the funds to pay him??? I don’t think so! This problem obviously isn’t about money. What we need to do is make sure that one guy working is smart enough and productive enough and has enough capital goods and software to be able to get all that done, or those retirees are in serious trouble , no matter how much money they might have.
> So the real problem is, if the remaining workers aren’t sufficiently productive there will be a general shortage of goods and services and more ‘money to spend’ will only drive up prices, and not somehow create more goods and services. The mainstream story deteriorates further as it continues: “Therefore, government needs to cut spending or increase taxes today, to accumulate the funds for tomorrow’s expenditures.” By now I trust you know this is ridiculous, and evidence of the deadly innocent frauds hard at work to undermine our well being and the next generation’s standard of living as well. Our government neither has or doesn’t have dollars. It spends by changing numbers up in our bank accounts, and taxes by changing numbers down in our bank accounts. And raising taxes serves to lower our spending power. That’s ok if spending is too high causing the economy to ‘overheat’ as we have too much spending power for what’s for sale in that big department store called the economy. But if that’s not the case, and, in fact, spending is falling far short of what’s needed to buy what’s offered for sale at full employment levels of output, raising taxes and taking away our spending power only makes things that much worse.
> And the story gets even worse. Any mainstream economist will agree that there pretty much isn’t anything in the way of real goods we can produce today that will be useful 50 years from now. They go on to say that the only thing we can do for our descendents that far into the future is to do our best to make sure that they have the knowledge and technology to help them meet their future demands.
> So the final irony is that in order to somehow ‘save’ public funds for the future, what we do is cut back on expenditures today, which does nothing but set our economy back and cause the growth of output and employment to decline. And, for the final ‘worse yet,’ the great irony is that the first thing they cut back on is education - the one thing the mainstream agrees should be done that actually helps our children 50 years down the road.
Warren Mosler, Seven Deadly Frauds of Economic Policy
http://www.heterodoxnews.com/htnf/htn93/Seven_Deadly_Rev12_D...
Doesn't this assume that the money that the elderly have can't be used to import things? If you can import, then the money is useful again.
There are huge reasons to expect it won't. It's not like Saudi Arabia just woke up one day and decided to trade in dollars because the dollar was strong. It was part of an agreement where the US promised military aid and supplies.
https://www.bloomberg.com/news/features/2016-05-30/the-untol...
We now have a solid understanding that human decision making is rarely logical and only barely rational, what makes anyone actually think (rather than believe/assume) that firms really don't act in the same way?
Do investors see something else? Are they factoring robots or something?