Oil prices hover above $100 a barrel as Iran supply fears persist
“My recent concern is that, amid significant downside risks concerning overseas economies, negative effects would be exerted on prices,” Takako Masai said in a speech to business leaders in Tsu, Mie Prefecture, central Japan, posted on the BOJ’s website.
Sales Tax Increase
Japan is set to hike its sales tax from 8% to 10% on Oct 1 in response to fiscal policy completely run amok.
That sales tax hike is guaranteed to be detrimental to Japan's goal of spurring inflation.
Policies Proven to Not Work
The message from the BOJ is that it is ready, willing, and able to escalate polices proven not to work.
The current interest rate is -0.1%.
Not only will the Japanese pay more for goods thanks to the tax hike, they are also poised to lose more money on deposits via increasingly negative rates.
How that is supposed to help policy goals remains a mystery.
Rising Dollar
The result of all this monetary madness by the ECB and BoJ is a rising US dollar.
Albert Edwards at Society General explains via email.
The consequence of continued aggressive easing by the BoJ and ECB is that the US dollar is seeing continued unwelcome strength. Unwelcome in the sense that the US is in effect, importing eurozone and Japanese deflation. I simply don't think this is sustainable much longer. Patience is wearing very thin at the White House at the Fed's lack of easing vigor and the impact this is having on the dollar. I expect President Trump to take matters into his own hands and respond with real aggression imposing tariffs on EU auto exports to the US and authorizing unlimited foreign exchange intervention to drive the dollar lower.
Japan has lagged the ECB recently in the easing game but seems set to catch up. In that context US yields have resumed their downward slide despite the recent stronger than expected economic data. Consequently the dollar remains annoyingly strong against the euro for the US administration - and even stronger if one looks at a broader [trade-weighted] basket.
Trade-Weighted Dollar
Monetary Madness Trademark
Make no mistake, further BoJ QE is taking us to a whole new level of monetary debauchery pioneered in Japan and now known under the Monetary Madness Trademark (aka MMT). The ECB and especially the Fed are real amateurs at this game. No wonder the dollar is around 50% too strong versus the yen
Japan on Different Planet
The Bank of Japan's balance sheet is over 100% of GDP. By comparison, the Fed is in the gutter at about 18% of GDP.
In Search of the Effective Lower Bound
Yesterday, I penned In Search of the Effective Lower Bound
I define ELB as the "point at which monetary policy becomes counterproductive to the goal, whether or not the goal makes any sense."
In this case, neither the policy nor the goal makes any sense.
After decades of monetary madness, all Japan has to show for it is stagnation.
I proposed yesterday Japan was already at the ELB. If so, rate cuts cannot possibly help.
However, it will be difficult to assess the blame because the monetary policy action will be in addition to the counterproductive fiscal policy action, raising taxes.