Abenomics Is Back: Shinzo Abe Returns As Japanese PM Following Crushing LDP Victory
What happens next? One word: Abenomics:
One thing appears certain: Japan, which is the grand Keynesian experiment in keeping bond yields in check even as sovereign debt/GDP is approaching 250%, may have some trouble with the coolness and calmness of bond investors now that Abe has even threatened with making the BOJ a branch of the government, setting 3% inflation targets, and outright monetizing the debt (without even the courtesy of semantical coverage).By contrast, Mr Abe has promised more public spending, looser monetary policy, and to allow nuclear energy a role to play in resource-poor Japan's future despite last year's nuclear disaster at Fukushima.
But economists say there is little new in Mr Abe's policies, or 'Abenomics' as they have been called. They have been adopted by previous LDP governments without successfully renewing the Japanese economy.
Mr Abe has also called for a tough stance on a territorial row with China over islands in the East China Sea that both countries claim.
But neither of the main parties fully convinced voters. Several new parties contested the poll and the right-leaning Japan Restoration Party founded by the mayor of Osaka, Toru Hashimoto. could win as many as 50 seats.
And the nationalist former governor of Tokyo governor, Shintaro Ishihara, whose bid to buy disputed islands provoked a fierce diplomatic showdown with China, may also have won a seat in parliament according to Japanese media.
In fact, as Bloomberg summarizes, Abe is the worst premier for JGBs since 1994:
The fact that something is rapidly changing in Japan can be confirmed by the following comparison of Japan vs US 10s30s, where suddenly Japan is getting far more concerned about the long end even compared to the country run by Blackhawk Ben:Shinzo Abe, the front-runner to replace Yoshihiko Noda in elections this weekend, oversaw a 1.2 percent gain when he was in office for a year through September 2007, the least since a loss in the two months that Tsutomu Hata was in power in 1994. In the 15 months under Noda’s watch, JGBs returned 3.2 percent, the most among the six successors to Junichiro Koizumi, who stepped down in 2006, data compiled by the European Federation of Financial Analyst Societies and Bloomberg show.
“Noda has been friendly to the bond market, and he literally risked his political career for Japan’s fiscal consolidation,” Shunsuke Doi, a market analyst in Tokyo at SMBC Nikko Securities Inc., one of the 25 primary dealers obliged to bid at government debt sales, said on Dec. 12. “An Abe administration would be an unfriendly environment for bonds, and super-long term yields are more likely to remain high in years ahead.”
Longer-term bonds are signaling concern about Japan’s fiscal health. The yield premium on 20-year JGBs over 10-year securities climbed to 99 basis points on Dec. 5, the highest since 1999. That compares with a gap of 68 basis points for similar maturity U.S. Treasuries.
Abe’s September 2007 statement for resignation from Japan’s top office made no mention of his economic record except for a growth strategy “centered on innovation and openness.” It listed the upgrade of Japan’s defense agency to a ministry-level position among his achievements.
Japan’s debt has climbed to 237 percent of its annual economic output, the most in the world, compared with 183 percent in 2007 during Abe’s previous tenure as prime minister, according to data estimates by the International Monetary Fund.
and stand alone... JGB 10s30s at record steeps...
"Not so honest" Abe's return deserved a special mention in the latest Privateer letter by Bill Buckler:
Buckler is spot on, however the Japanese people are hardly aware of these nuances, and hardly aware that any ongoing blow out in bond spreads as Abe's targeted inflation goal of 3% is hit, will achieve two things before any vaunted "recovery" in the economy comes:The man of the hour in Japan right now is Shinzo Abe, the leader of the Liberal Democratic Party (LDP) and the man almost universally expected to become the new Japanese Prime Minister on December 16. Mr Abe has been the Prime Minister before - as recently as 2006. His resignation in 2007 ushered in the modern era of “annual governments”. If Mr Abe gains the top spot this time, he will become the sixth Japanese Prime Minister since he last held the job in 2007.
The policies Mr Abe is selling, the ones which are expected to lead to his electoral victory, have been dubbed “Abenomics” by the Japanese media. Mr Abe wants to further increase what is so politely called “monetary easing”. He also wants to embark on yet more infrastructure projects while at the same time pushing the exchange value of the Yen down to foster the “competitiveness” of struggling Japanese companies. Finally, Mr Abe is expected to put pressure on the Bank of Japan to start DIRECTLY monetising Japanese sovereign debt. He has gone so far as to suggest that the 1998 law which ostensibly granted the BoJ independence from government be rewritten or simply scrapped.
If there is any political prescription which can finally push Japan over the brink and bring on a dreaded spike in Japanese interest rates, it is the one being pushed by Mr Abe. Any increase at all in the borrowing rates being paid by the Japanese government would be instantly catastrophic. When, not if, that happens in Japan, it will be the end of the line for all those advocating stimulus via the printing press all over the world. If Mr Abe follows through on his policies after December 16, it’s only a matter of time.
i) all Japanese banks and insurance companies will go promptly bust and require a massive bailout, but by Japanese citizens (most likely to be footed once again by the Chairman in exchange for the recent Japanese favor in buying US TSYs, in a time when China has decided to boycott any such purchases), and
ii) all Japanese tax revenues will go merely toward covering the cash interest on the government debt, as the following two charts summarize quite well:
Sovereign debt/government revenue. Japan is at, oh..... 2000%. Can you say living on the edge?
Total Japanese debt, which at last check was breathing on JPY 1 quadrillion:
And once the Japanese domino falls, and Kyle Bass is finally vindicated, the entire house of Keynesian cards will promptly follow.
Congratulations Japan: you may have just been the first to push the grand reset button.