Revolt against NIRP Breaks out, Bank of Japan “Baffled”

Meanwhile, exports collapse at fastest rate since 2009.

This would be hilarious, if it weren’t so serious: Frazzled politicians, during a parliamentary session, lambasting the governor of their central bank over its new negative interest rate policy. But this is what happened in Japan.

Central-bank imposed negative interest rates have caused a lot of financial mayhem. Since they’ve contaminated much of Europe, they’ve dragged most major stock indices into a bear market. In the US, stocks fell hard as well. The Nasdaq sidled up to a bear market before bouncing off and is now down “only” 14% from its peak. The Russel 2000 is in a bear market, down 22.4%.

In Japan, stocks have gotten mauled since the Bank of Japan inflicted the idea of negative deposit rates on the land three weeks ago, after Governor Haruhiko Kuroda had repeatedly assured parliament that he wasn’t even considering the idea. Despite a bounce earlier this week, the Nikkei is down 24% from its recent high.

It doesn’t matter that, under the BOJ’s three-tiered system, no deposits qualify yet for the special treatment. It’s the idea that counts. It’s all a mind-game.

And so on Thursday, Kuroda stood before Parliament to be lambasted from all sides. According to DJ Business News, he “found himself dodging a concerted attack in Parliament from lawmakers who charged the policy was victimizing consumers and sending a message of despair.”

Opposition lawmaker Shinkun Haku needled Kuroda: “Can you deny that banks will put an additional burden on average depositors” by charging fees or interest on deposits? “If you can’t deny it, don’t. It’s a yes or no.”

Kuroda dodged the jab the best he could, refusing to speculate on fees but said that “there’s no chance that deposit interest rates will turn negative.”

He referred to the great things negative deposit rates have already accomplished in Europe, that they encouraged lending, etc., etc., but had few harmful effects. “Europe has much larger minus interest than the Bank of Japan, and I haven’t heard of minus interest rates being applied to individual depositors there,” he said, though we’ve heard of it. “Punishment interest,” Germans called it.

Other lawmakers jumped into the fray.

“You have sent a message to the people that they had better watch out because Japan’s economy is in trouble,” Communist Party lawmaker, Akira Koike, threw at him.

Opposition lawmaker Motoyuki Odachi accused him “of sounding like a World War II propaganda broadcast.”

Even ruling-party member Masahiro Ishida plowed into him. The policy was hard to grasp, he said, and “it could have the opposite effect of confusing the market.”

Confusing the market? Which market? The one that central banks are trying to manipulate with all their might? Yup, that’s the one. NIRP is “confusing” it. “Confusing” means: it’s sending it south. Everyone knows, the only correct direction is up, especially since the BOJ is buying ¥80 trillion ($700 billion) a year in government bonds and other securities, including equity ETFs and J-REITS, for the sole purpose of inflating asset prices.

Plunging stocks in Japan and around the world are not part of the plan. Nor is the uppity yen that, despite all efforts to crush it, has jumped against the dollar since the announcement of NIRP. Crushing the yen was supposed to increase Japanese exports so that they would pull Japan out of trouble. But exports too are plunging.

In the first half of 2015, exports still rose 7.9%. But then exports fizzled. They dropped 2.2% in October, 3.3% in November, 8.0% in December. And the Ministry of Finance just reported that exports in January plunged 12.9%, the biggest drop since October 2009!

Exports to China plunged 17.5%. Exports to Hong Kong – most of it for transshipment to China – plummeted 26.2%. Exports to all Asian countries fell. In nine of the 11 Asian countries listed, exports plunged between 15.8% (Malaysia) at the low end and 26.2% (China and Vietnam) at the high end. Yes, this report is one ugly dude!

So if negative deposit rates crush stocks, boost the yen, and wipe out exports, in addition to punishing savers, retirees, banks, and fixed-income investors like insurance companies, what good are they?

Is that why these policies weren’t gaining public support? DJ Business News cited an unnamed “official” who explained the phenomenon this way:

“Those who understand this policy are criticizing us, and those who do not are also criticizing us.”

And the public doesn’t care for them one bit. Sure, Japan Inc. gets cheaper loans to fund projects in Thailand or Vietnam. But Japanese society has a lot of retired folks who live off their savings and pension incomes. They’ve already gotten whacked by the consumption tax hike and price increases, while their interest incomes have disappeared and pension payments have stagnated. They’re planning on living long healthy lives. So they’ve tightened their belts, and that’s not great for the economy. But they’re in no mood to pay fees or interest on their savings.

So the BOJ has a tough job: Beyond the financial manipulations, it is, as the DJ Business News put it, “struggling with a different and equally hard-to-control force: public opinion.” That negative reaction against NIRP from the public and the markets left the BOJ “baffled.”

That’s what it boils down to. These sorts of scorched-earth monetary policies are a confidence game. People, particularly investors, need to believe in them and in central banks as if they were divine forces, they need to blindly and in unison follow their guidance, and not deviate or look at reality, but when that leap of faith suddenly fails, all heck breaks loose.

And this is what we get: global trade is skidding south at a breath-taking speed. Read…  I’m in Awe at Just How Fast Global Trade is Unraveling

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  28 comments for “Revolt against NIRP Breaks out, Bank of Japan “Baffled”

  1. Bob Miller says:

    “It’s all a mind-game.” That is true, but you left out the fact, Wolf, the winner of this game has been the same team since the contest begin. I think it’s important to recognize these winners due to the fact they enters the arena as the underdog. If you look at it like a Super Bowl, with one team having only 62 players and the other team having 3.5 billion players, you have to asked yourself how is it possible these 62 players score more points each year than the 3.5 billion players? I think it’s a matter of planning. Winston Churchill put it very well in my opinion. “Let our advance worrying become advance thinking and planning.”

  2. Al Tinfoil says:

    Kuroda needs to print more trade and more prosperity, since printing currency and buying government bonds is not providing either trade or prosperity. Or maybe print “confidence”, since, as the article notes “monetary policies are a confidence game”.

    But for heaven’s sake do not mention the words “ponzi” or “fiat”.


    • Randy says:

      Yes, and while he’s at it, Kuroda needs to also print up lots and lots of intelligence, honesty and trustworthiness too!!

  3. MC says:

    Japanese politics tend to be, how can I put this?, colorful.
    This is probably due to the fact ordinary Japanese have never had much interest nor trust in them: voter turnout has never been over 70% even during post WWII boom years and since Abenomic started it has contracted all the way to 50%. Hence being a showman can help.

    I am sure those Diet members who justly lambasted Kuroda for his war on savers previously welcomed his ZIRP/QE efforts. He delivered to them the ability to continue engaging in pork barrel which constitutes the lifeblood of Japanese domestic policies without hiking taxes… until the sales tax hike, which shaked Japanese policies to the core.
    That sales tax hike was a momentuous event as it helped shift political attention from Japan’s export titans (SUMCO, Toray Industries, Mitsubishi Chemicals, Hitachi etc) to Japan’s downtrodden consumers and savers. The big keiretsu are generally doing well but the wealth they produce isn’t “trickling down”: they have either become even more efficient (meaning they need less workers to produce more) or they have vast operations overseas, where the money they earn mostly stays.

    Japanese politicians are like politicians everywhere: they like to win elections and they don’t like being voted out of office by exasperated people. Their pool of voters has been generally shrinking and aging. Old people may not like change, but when their livelihood is at stake… they may seriously consider shifting their vote or staying at home on election day like their children and grandchildren.

    That’s why this very Japanese show. Haruchiko Kuroda has a lot to answer for, but those politicians are performing the age old trick of diverting attention from their own faults (like complete failure to balance budgets for two decades and counting) by pointing their fingers to another seemingly bigger crook.

    • nick kelly says:

      Voter turnout was only 70%? Has the US in any election ever got this high?

      • MC says:

        Yes, it topped between 1968 and 1972, then started a slow decline which accelerated between 1998 and 2002. You can definitely see a connection with economic conditions here.
        It can be said Abe enjoys such a majority in the Diet because his coalition voters are the only ones still bothering turning up.

        Mind the Japanese voting system is closer to some European than to the US one: for example you don’t need to register to vote. It’s, as magniloquently described, “a right and a duty” for every citizen.
        A right an increasing number of citizens choose not to exercise, I may add.

        There are rumors floating around Abe’s Liberal Democratic Party may call for yet another snap election this year, so as to have a majority in the Diet until 2020 (elections are every four years, unless the lower Diet is dissolved earlier).
        This is yet another mind-boggling idea from Mr Abe: his ruling coalition (Liberal Democrats and Komeito, a religious-oriented party) holds 68% of the seats and elections aren’t scheduled until 2018. Snap elections could actually mean losing seats to Komeito itself (so far a junior partner, albeit a rapidly growing one) and to the opposition, chiefly the Democratic Party (not to be confused with the post WWII Democratic Party) and the Communists.

  4. At some point, even the CBs will finally give up. As bad as all this is being played, SURELY the respective governments will see what a BAD IDEA central banks are.

    But as Keynes as said “The market can stay irrational longer than you can stay solvent” can also be applied to banking….

  5. B Tilles says:

    Perhaps the Japanese (and others) should think of their central bankers as the new emperors.

    Problem: What happens when the emperor “has no clothes”?–aka pushes on a string.

    Do we/they politely avert our gaze?

  6. ERG says:

    I don’t know who said it first, but it is true:

    “Japan is a bug looking for a windshield.”

  7. CENTURION says:

    Since I was 16, I began thinking “for myself”.

    At 18, I read ATLAS SHRUGGED. From that point on, I decided to live my life as MY life.

    I have always been, and am no, in a financial/health/mental situation that I really don’t have to care what the “world” does. It is an awesome feeling.

    Let the world “go to hell”. Run your life with intelligence and control and 99.9% of this will have no effect on you. Sure there are situations that CAN harm me, but we will all be dead at that point.

    • Hubbard says:

      Ayn Rand is a joke. You are dependent upon all the people around you to believe in truth, justice and the American way.

      Otherwise we’ll just pick up clubs and take your stuff. The question is are you strong enough to take on the entire world?

      You do not make the world, it makes you!

  8. Yoshua says:

    All those pensioners will push us off the fiscal cliff. Thousand years ago Scandinavian’s had a pension plan too… they simply pushed the old citizens off a cliff.

    • Randy says:

      Yes, and I have read that the Eskimo did a similar thing. They gave a party where the members of the tribe all got together and had a nice meal, the elderly man or woman were treated to stories and recollections of the family members, with much laughter and hugs and kisses, and then the oldsters were placed on a sled and dragged far away from the village, far enough away that they couldn’t walk back. They would then sit there on the sled, watching the skies, enjoying the Aurora Borealis and shooting stars, until they froze to death in the cold night air. But they knew that day was coming, they believed that they would ascend the “stairway” to Heaven, the Aurora Borealis, and then be with the gods. So they were OK with it all after many years of societal conditioning. But as for me, I’m not looking forward to being taken out behind the chemical sheds, and having some bullets shot into my head for the “good” of the State.

  9. Ptb says:

    “Confusing the markets” ? it’s so funny, it’s sad. I guess this is PC speak for “the markets are understanding just how useless you really are”

  10. OutLookingIn says:

    Negative rates are useless without first doing away with actual physical cash. Physical cash (notes & coin) are an antithesis to central banks wanting to institute a negative rate policy. One negates the other. Its like attempting to bale out a sinking boat without first repairing the leak.

    • Randy says:

      But the banks cannot function without lots of electricity going down the wires. Too many people will NOT go quietly into the night and just accept that fate. When things begin to jump off, so to speak, they WILL bring the fragile grid down and level the playing field. Everyone’s bowl of soup will be pissed in at that point.

  11. Dave Mac says:

    When the brown stuff hits the fan, someone has to be a scapegoat.

    Step forward Mr Kuroda to take a bow (and a knife in the back)

    • polecat says:

      he probably will have a lot of company………..

    • Chicken says:

      You’re dreaming, all these members of criminal enterprises receive raises and golden parachutes, future employment from their masters. Being entitled means they get away with committing fraud and financial crimes scot-free.

      Prudent savers get the knife in the back.

  12. Chicken says:

    I bet Japanese central bankers have not run out of effective mechanisms for transfer of wealth from prudent savers to the criminal enterprises quite yet.

  13. Lee says:

    About the only bright spot in Japan’s economy is tourism.

    Millions of visitors have boosted the economy. The falling value of the Yen has helped along with easier visas.

    That too is now under threat as the Yen has increased in value and the hotel industry takes aim at Airbnb:

    “Under pressure from the hotel industry and a populace concerned with the surge of foreigners in their neighborhoods, Prime Minister Shinzo Abe’s government has released guidelines for home-sharing — called minpaku in Japanese — that could make most Airbnb rentals in the country illegal. Airbnb hosts would only be allowed to rent to guests who stay for a week or longer, a minuscule slice of the market. The national guidelines only become law if local municipalities decide to ratify them, but that is beginning to happen.”

  14. Charles says:

    All I know is that if it happened here, I’d cut all non-essential services (i.e. anything not a public utility) and buy only the bare necessities………

  15. Jeff says:

    “So if negative deposit rates crush stocks, boost the yen, and wipe out exports, in addition to punishing savers, retirees, banks, and fixed-income investors like insurance companies, what good are they?”

    To quote Jim Rickards from this months newsletter. He provides are very good answer to your question of “what good are they?” Good for Global Elite, not for us bottom feeders…. same shit different story.

    The power elite is also implementing the cashless society. This is needed in order to impose hidden taxation in the form of negative interest rates. (There are two forms of hidden taxation: inflation and negative interest rates. Inflation is the preferred method, but in deflationary episodes, negative interest rates are useful.)

    Cash is one way to avoid negative interest rates (with cash, you preserve principal; with negative interest rates you do not). A slaughterhouse will round up cows into pens before killing them.

    Likewise, the power elite will round up savers into digital accounts before taking their money. Cash is a free-range alternative to the slaughterhouse pen. Therefore, it must be eliminated. (The other free-range alternative to digital accounts is gold.)

    The power elite will confiscate wealth through negative interest rates. This is the endgame of the cashless society discussed above. Negative interest rates are the mirror image of inflation. Inflation steals your money directly by making it worth less. Deflation makes money more valuable, so it must be stolen through other means. Negative interest rates serve this purpose.

    Negative interest rates are not the power elites’ preferred method of stealing your savings. Elites prefer inflation, but that has been difficult for central banks to achieve recently. Quantitative easing, zero interest rates (ZIRP), negative interest rates (NIRP) and currency wars have all
    failed to catalyze inflation since 2008.

    One method that is guaranteed to cause inflation is
    debt monetization. (This is also known as “helicopter money,” and “people’s QE”). The technical term for it is fiscal dominance.(Government spending dominates central bank policy and forces money printing.)

    However, global elites seem to have settled on “debt monetization” as a preferred term. The process is simple. When individuals refuse to borrow and spend (as is the case today), the government will borrow and spend for them.

    The spending is designed to favor elite cronies such as Elon Musk and Tesla. Increased spending means larger deficits, which are covered with more government bond issues. The bonds are purchased by central banks with newly printed money.

    The central banks then stash the bonds on their balance sheets forever. The public is oblivious to the process. With enough forced spending, inflation will emerge, although the process may take several years. Central banks will be powerless to resist debt monetization.


  16. nick kelly says:

    And don’t forget that the government forced the pension fund to buy stocks and has now lost double digits.

  17. Jonathan says:

    The more you want to screw over the general populace, the more they become risk-adverse aka spend even less.

    This just basic psychology 101.

  18. carlos123 says:

    To go from positive interest rates, to ZIRP, then finally NIRP, have to pass through a massive rubicon which generates a very unfortunate DIV/0 error ! in how major retirement funds invest. The large retirement funds ‘must’ invest in positive returning funds. The retirement groups (e.g. CALPERS) are not allowed to go negative. So, this NIRP, is a major issue going forward for many and might be the 3rd RAIL of the economy and CBs — DON’T STEP ON THE 3rd RAIL !

    • Randy says:

      ALL fiat paper currency systems eventually crash. The unjust system of weights and measures is just a mass of lies, sort of like a writhing mass of poisonous snakes, and if you go and tread on any of them, you get bitten!! In short, no one really gets out of that pit alive.

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