There are no one-way bets in global finance, but Japan’s stock market comes close. The authorities are about to funnel large sums into Japanese stocks openly and deliberately under the next phase of Abenomics, both by regulatory fiat and by purchasing the Nikkei index directly with printed money.
Prime minister Shinzo Abe is unshackling the world’s biggest stash of savings, the $1.3 trillion Government Pension Investment Fund (GPIF). Officials say the ceiling on equity holdings will rise from 12pc to around 20pc as soon as August, opening the way for a $100bn buying blitz.
Fund managers are suddenly in a race to get there first. Japan Post Bank – where Mrs Watanabe dutifully places the family money, confiscated from her Salaryman each month before he can spend it – is itching to rotate more of its $2 trillion holdings into equities before inflation pummels the bond market. So is Japan Post Insurance, no minnow either at $850bn.
Mr Abe’s move comes sooner than expected and amounts to a market shock, though nobody should be shocked anymore as he keeps doubling down on the world’s most radical economic experiment.
Japan’s “misery index” has risen to its highest since 1981 as Japanese workers feel the pain of rising food and import costs from yen devaluation, without seeing the gains. Yet the one-off hit is largely over. Unemployment has dropped to modern-era lows of 3.6pc. That is likely to halt the fall in real wages very soon, if it has not done so already. Pay rises in the Spring round of talks were 2.14pc, with a bonus of 0.48pc to be paid in June. Restaurant wages in Tokyo are up 10pc in a year.
“The Bank of Japan will have to hold rates down even after deflation ends, and this will be the start of full-fledged financial repression. Unless Japan is very lucky, the merits of ending deflation will be dwarfed by the demerits of a destabilised economy.”
The BoJ will have to mop up the entire issuance of public debt for years to come, covering the budget deficit with printed money. Officials admit privately that this is the purpose. Mr Kuroda will not stop when the 2pc inflation target is reached. There will another long phase when the BoJ says it must be sure. “There is room for interpretation,” said one insider.
Full article: Japan to keep printing money for years to come, so learn to enjoy it (The Telegraph)