Stimulus running out of puff – what next?

Posted by in Development, Economics

Global investment banks believe Japan has run out of stimulus options. They’re buying up Japanese bonds (debt), driving down the cost of debt to the Japanese government. But if stimulus is ending, isn’t that bad news? What’s going on?

Aug 5 2016          “Bank of Japan near limit of its stimulus” Bloomberg
May 17 2016      “Hedge funds buying futures contacts that benefit from future gains” Bloomberg
Apr 27 2016        “Investors are increasingly betting the yen will strengthen” WSJ
Jan 20 2016         “Investors are betting against further yen weakness” WSJ
Jun 1 2015           “Hedge funds increase their bets against the yen” The Tell
Nov 28 2013        “Investors are piling into bets against the yen” WSJ
Feb 14 2013        “Soros fund bets against Yen, makes $1B” Reuters

There’s nothing honest written in financial papers about the plans of speculative international financiers… But this is presumably a short term bet, to benefit from future rises in the yen. Since Japan has hit the limits of low interest rates, the Yen will start to rise and Japan’s international competitiveness will fall.

The endgame for quantitative easing is getting nearer, but not surprisingly no-one is saying what that will be. It’s not palatable to admit that the usual global players are grabbing what they can get, without regard to equity or long term consequences:

Volatility is up; financial gains from speculation are up;
Debt costs are down; debt, leverage and risk are up;
Big powers print money; their competitiveness is up;
Small nations are forced to follow with lower interest rates; debt and sovereign risk is up;
Struggling nations sell core assets; their long term capital outflows rise…

Soon, the short term bets will evaporate, the cost of debt for indebted nations like Japan will have to rise. And when the next crisis hits, there’ll be the usual calls for global agencies and governments to sort it out, to carry the costs and further weaken sovereign power.

We need to start discussing ways to short-circuit the power of the global/American corporations who have profited from the last 30 years of deregulation. If we don’t, this is a continuing downhill slope for global equity and an ugly world for our children.