Submitted by Jeffrey Snider – Alhambra Investment Partners
At the same time the Bank of Japan cut its outlook for “inflation” last month, seriously violating the standard set at the beginning of QQE to meet its target within 2-years, they also raised their growth predictions for the coming fiscal year (starting in April). Nobody seems to have appreciated the irony of that since almost all of the increase in expectations for real growth was due to nothing more than that lowered expectation of “inflation.” It may only be GDP but it is more than a little amusing, after insisting over and over that inflation is some kind of cure, that missing their inflation target raises their own GDP estimates.
In its updated price and growth projections for the next two years, the bank cut its median forecast for the average rise in the consumer-price index in the year starting April to 1.0% from the previous 1.7%.
The sharper-than-expected cut, made for the second time in a row, is still fairly bullish considering the recent drop in the inflation rate to well below 1%. The central bank revised up its price forecast in the following year, a sign of confidence that cheaper energy costs will provide a major boost to firms and households, stimulating their spending and leading to a rise in prices.
I guess that means growth is expected to take place regardless of price instability, with the price level itself nothing more than a marginal piece of intensity. This idea about inflation as a cure is making even less sense now than it had when QQE was first announced as an excluding condition. Part of that is no doubt related to how the Japanese economy itself has done nothing that was expected, often acting, like exports and wages, in the contrary and more harmful fashions.
Less attention was paid to the “unexpected” recession in calendar year 2014 that was finally admitted, as GDP expectations, already cut prior to just +0.5%, were trimmed to -0.5%. Writing off 2014 as a lost year due to the tax increase, economists view a looming recovery. The latest data from Japan, including trade data released prior, again might beg to differ.
The original expectations set out when the tax increase was first announced was for any negative pressures to be cleared up by the end of Q2 2014, meaning no lingering effects, with Q3 2014 beginning the great revival. Yet, household income in Japan continues to shrink well past those original expectations (questioning the veracity of the newest outlook). Household income, including disposable income, has declined in real terms for seventeen consecutive months. That directs the “blame” not on the tax increase but the repressive despotism of “inflation” in the first place. The Bank of Japan might need to review the Federal Reserve Bank of San Francisco’s latest offering on the topic of central bank bias and prediction.
Further to that end, BoJ’s economists view, as they all seem to as noted above, oil prices helping drive the consumer off these woeful trends. And just like in the US, to December at least, Japanese consumers have instead tended far more toward saving any price relief – household spending continued to get worse.
The wage component of the household balance sheet continues to see seriously negative real terms, but has been better (as in less negative) lately as price pressures mercifully abate. In other words, demonstrating that central banks are committed to the lowest wages possible, BoJ will try its best to get those wage rates back down to levels at the worst of 2014’s “unexpected” recession. Spending rates thus seem to strongly suggest Japanese households, despite their spent inclination to revote Abe, know what is intended and coming for them in that regard.
The real problem with all of this, however, is the negative pressure redistribution places on actual and beneficial economic activities. It’s not just that real wages continue to decline at whatever inflation-adjusted level, but that actual activity is depressed.
The unemployment rate in Japan ticked down to just 3.4% from 3.5%, but as you can plainly see total hours worked has tailed off rather severely since October. In combination then, the slight increases in nominal wage payments shows that companies are paying slightly more and getting less – meaning they are doing less. From this we get expectations of close revival?
The entire theory of “inflation” as an economic solution, which is really just one form of “aggregate demand” conjecture, violates basic sense. The Japanese economy is the perfect empirical sample of how redistribution is instead a damaging and repressive component nothing like what its proponents only theorize. Yet again, instability is taken positively where it is expected to be “managed” by diktat and command. The Japanese economy continues to show, inarguably, that it isn’t the specific form of instability that matters. As a means of more universal expression, we get a sense of what happened to the global economy in 2007 and again in 2012.