(This is just a direct translation through Google AI from my Japanese version text at Ameblo.)
Before taking office, the new governor of the Bank of Japan, Ueda, was either a dovish bubble-cleaner like former governor Kuroda, or a bubble activist like former Fed chair Volcker, who splendidly put an end to the U.S. and global inflation in the 1980s. There seemed to be mixed speculations about whether he was an extermination faction, or whether he was an indecisive, weathercock-like chameleon that swayed between the two factions.
However, the new Governor of the Bank of Japan Ueda, like the former governor, apparently belonged to the post-bubble eradication group, not the bubble eradication group. At the Bank of Japan's Monetary Policy Meeting on April 28, when Mr. Ueda, former dean of the Faculty of Economics at the University of Tokyo, attended his first meeting as the new governor, and he maintained the status quo by continuing with highly excessive monetary easing policy.
The Bank of Japan, which should be the keeper of prices and the currency, has witnessed the fire of inflation well over 2% blazing, and it seems to be only getting bigger. Leaving aside the "senior citizens" who are becoming more hereditary and more privileged, at least for the general public who are puzzled by the reality of the double whammy of the heavy consumption tax and the rising inflation tax, it is just an act of betrayal. Unfortunately, the new Governor of the Bank of Japan Ueda seems to be nothing more than a “watchdog of the government”.
Cost of living crisis
For example, the consumer price index excluding fresh food (core CPI), which has consistently been the target of price stability since the Bank of Japan introduced a different dimension of monetary easing 10 years ago, is expected to decrease by 3% year-on-year in FY2022. %, and there should be no dispute about the fact that the Bank of Japan's price stability target of 2% has already been greatly exceeded. In particular, food prices, excluding perishables, recorded a year-on-year increase of 8.9% in April in Tokyo's 23 wards, a rate of increase that seems to be approaching double-digit inflation. (COST OF LIVING CRISIS) is likely to become more and more difficult as a leading index in the future, not only in Tokyo's wards, but also throughout Japan.
Arbitrary "price trends'' are nothing more than a smoke screen to hide inflation
Incidentally, the "underlying upward trend in prices" that New Governor Ueda of the Bank of Japan referred to at the press conference after the decision-making meeting is too arbitrary and cannot be defined objectively. If this situation continues, it is expected that the BOJ governor's judgment on the underlying trend of price increases will depend entirely on his subjectivity, and that he will clearly fail to fulfill his objective and persuasive accountability.
If we were to objectively define the underlying upward trend in prices, it would be the prices excluding fresh food and energy, which, as is widely known both at home and abroad, tend to fluctuate due to factors such as weather factors and external geopolitical risks. The BOJ should officially redefine the Japanese version of the core-core CPI, as the underlying price trend, and concentrate on its inflation rate. To reiterate, it is precisely the core-core CPI that recorded the acceleration of inflation in the 23 wards of Tokyo, which has been at the forefront of the nation even this fiscal year. The subsequent acceleration of underlying price increases is clear.
Monetary policy cannot raise real wages
At the press conference held at the first decision-making meeting in late April, the new Governor Ueda said, "We will aim to achieve the price stability target of 2% in a sustainable and stable manner while increasing wages. It is difficult to control real wages, which is the difference between wages and prices, through monetary policy. In order to raise real wages, wage increases must be greater than price increases, because this depends not only on monetary policy but also on productivity and the supply and demand situation in the labor market. Monetary policy can be a tool to stabilize inflation and economic growth, but it does not directly affect the level or distribution of real wages. In particular, in the vicinity of zero interest rates, the Japanese economy has already fallen into a "liquidity trap," and we cannot help but see that monetary policy is not only ineffective, but also extremely incapable of moving Japan's real economy. I have to wonder why the Bank of Japan does not, or does not try to understand, the "liquidity trap," which was a maxim of Keynes about 100 years ago.
The 'Easy Money Era' Has Lasted Too Long
One of the documentary TV programs that caught my attention this spring was The Age of Easy Money. It was the title of a two-hour detailed report on the famous documentary program FRONTLINE on PBS TV in the United States immediately after the failure of the US Silicon Valley Bank on March 10, 2010. As the special feature points out, the recent signs of a global asset bubble bursting are behind the global monetary easing that has continued for the past 15 years after the Lehman Brothers bankruptcy. ”, that is, there seems to be a period of too much money. After the Lehman Shock in 2008, central banks of major industrialized countries suddenly began to compete with each other in massive purchases of government bonds as a remedy for the "great economic stagnation" that had begun to plague the world at that time.
The unconventional monetary easing, centered around sharp cuts, was at the core of the rescue (the so-called quantitative monetary easing (QE)). The excess liquidity brought about by such unconventional monetary easing was not only followed by soaring global commodity and resource prices, but also bonds (as interest rates and their inverses), as well as stocks and real estate. By boiling almost all kinds of asset prices, such as foreign exchange, and creating a global asset bubble, we have finally brought about a global era of great inflation after 2021, which has continued to this day.
Kishidanomics and the post-apocalyptic Uedanomics cause the Reiwa BOJ bubble to run wild
Another major factor that could cause Japan's inflation to overshoot is the endless expansion and relaxation of fiscal spending caused by Kishidanomics. As a result, the twin debts of the government and the Bank of Japan are only accumulating. Due to the relaxation of the two different dimensions of monetary and fiscal policies, the Japanese economy could, unfortunately, sooner or later invite a sudden rise in interest rates due to currency depreciation and/or higher inflation, making the biggest crisis in the postwar era even more serious.
In addition to the long-term stagnation of the past 30 years in the declining birthrate and aging population, the crisis of inflation overshooting after FY2010 as a new issue. The “Japan Revival Scenario” for these is a permanent reduction of the consumption tax rate to 5% toward the abolition of the consumption tax, as well as an accurate fiscal and monetary policy that boldly and quietly implements monetary policy normalization. There will only be a policy mix.
Unfortunately, however, the "Japan's Revival Scenario" is an undemocratic political economy in which the "senior citizens", whose heredity and privileges are advancing, continue to deprive the general public of not only the heavy consumption tax, but also the rising inflation tax. We cannot help but fear that under the regime, it will become an increasingly distant mirage. Can our country just sit and wait for the arrival of the greatest crisis since the war? I can't help but advise you to prepare now for a further amplification of the asset bubble of almost any imaginable type, including stocks, real estate, bonds (interest rates), currencies, etc., and an even more severe bubble burst after the coming party.
May 8, 2023
Tomo Nakamaru
Former World Bank Economist
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