Talk about whiplash. Having waited over three decades to restore inflation to its economy, the Bank of Japan is now concerned there’s too much. Maybe way too much. If so, was the twenty-sixth time really the charm? That’s how many QE versions have been implemented since the world’s first more than two decades ago.
Recall how massive QQE (QE21 by my unofficial tally) had been foisted upon the increasingly impoverished Japanese people all the way back in April 2013. It was said to have been the most awesome ever. No possible way it wouldn’t shove the moribund island nation out of its “deflationary mindset.”
Yet, it didn’t. Because it didn’t, Japan was left even more destitute for want of actual economic success, growth, and recovery. For every additional QE or QQE (with YCC and any number of appended initialisms), that’s one more time officials wouldn’t seek a true remedy, a truly scientific agenda which may have had a realistic possibility of succeeding.
Success should never be counted by inflation, or deflation, whatever the case may be. Two wrongs never make it right. Suffering deflation, the answer is to solve…deflation. The idea that inflation somehow cancels deflation evolved when Economics turned its back on monetary competency.
Still, the Japanese struggled just with the attempt. Until this year, Japan was more likely to have witnessed broadly falling prices as even modestly rising. CPIs trending toward the Bank of Japan target were exceedingly rare, and never actually achieved them.
It wouldn’t matter how many, how much, how far any one of the too-many QE’s were being employed along the way. That much has been perfectly consistent. The drawback, as always, the next QE being a wasted opportunity to look elsewhere.
Looking elsewhere would have meant truly examining the entire intellectual framing. Again, who would opt for inflation as a cure for deflation? Both are wrong. Horribly wrong.
The answer in each instance is a stable monetary system devoid of either. Common sense and logic, not for policymakers all over the planet who on the contrary uniformly agree pursuing one when confronted with the other is a wise course of action…and already a huge red flag.
It simply means they don’t know what else to do. This is the sort of scientific method a kindergartner or maybe toddler might practice; realize something’s wrong and just give the opposite a try. Nowhere near fitting the nameplate coolly spelling quantitative easing.
Now Japan has finally discovered the opposite, its seekers are perplexed as if they never really expected it would happen (seriously, they’re stunned by this year’s turn of events). Joining everyone else around the world, the Japanese CPI was propelled in August 2022 to exactly 3.0% (pseudo-precision, sure, but almost certainly in the ballpark). That’s the highest since 2014 when the VAT tax imposition (not QQE) had exploded consumer prices.
Japan’s core CPI, which excludes fresh food prices, it surged to a 2.7% year-over-year change also in August. The core rate is what the Bank of Japan uses to judge its own policies, the measuring stick by which to evaluate whichever numbered QE. Finally nearer to 3% than ever, it was the fastest pace since 1991.
Rather than fashion the parade route, now policymakers are truly concerned. Finally getting what they purportedly wanted from their consumer price numbers, calling upon their compatriots worldwide, Japan’s policymakers are horrified over the possibility of the situation accelerating. There’s the European example, a relevant comparison for all the most concerning reasons.
Europe like Japan has to import pretty much all of its basics, starting with energy. We know what oil prices look like across European markets, well the Japanese have to pay for crude and food with a yen which has absolutely plummeted – even more than the euro has.
Which only raises more questions. Critics of QE have continuously decried its “money printing” excesses, the potentially unlimited creation of bank reserves out of thin air constrained by nothing more than increasingly desperate policymakers. Whomever tried to go so far would, they said, absolutely kill their currency.
It only happened just recently, too, beginning in the autumn of last year then the yen accelerating its collapse around March this year.
Japan’s QQE-busting bank reserve explosion transpired way before. BoJ reported ¥343.6 trillion reserves (the leftovers from QEs 1 to 24) as of March 2020. COVID overreactions, pandemic policies strike leading to panicky, turbo-QQE, reserves explode by ¥120.4 trillion by the following April.
Since last April, by contrast, reserves have increased by just ¥9 trillion.
But the yen didn’t truly drop until the April after that. Same, too, the CPI hadn’t accelerated until the middle of this year.
How could Japan’s front-loaded QQE be responsible for the yen and the CPI if nearly the whole “money printing” was well more than a year old before each finally did something? Either some uniquely constrictive lagging effects, or bank reserves couldn’t have been the reason. Neither the currency’s collapse nor consumer prices just now joining the global force can be attributed to the Bank of Japan.
Both will be anyway not just because everyone says so.
Having been on a prolonged quixotic quest seeking just these results, now officials fret their own purported success. One BoJ board member at the central bank’s last policy meeting reportedly worried, “There's a risk consumer inflation may deviate significantly upward from our baseline scenario, partly due to the impact of exchange-rate moves. This needs to be examined humbly and without any preconceptions.”
Which preconceptions? While this unnamed official was probably referring to the well-known institutional bias among Japan’s indeed all global central bankers to invite inflation for the constant, unexplained deflation or disinflation each typically, unsuccessfully has confronted for way too long, there are other prejudices not a one of the group will likely give much thought.
Starting with what a central bank’s task might truly be. Is it fine-tuning an economy? Central planning up to resource allocation? Using inflation to defeat inflation, and then deflation to overcome inflation?
There really is, or ought to be, only a single answer requiring a lone word: stability.
These central bankers claim to champion just that concept, so at least each is willing to admit there is the ultimate economic and financial purpose. Yet, their methods are the least likely to ever reach this prize. We know this because, again, a couple decades and a couple dozen Japanese QEs, then a dozen or so more elsewhere, have left us all faced with what?
Massive instability.
Nothing more ably pictures what’s truly facing Japan right now quite like where yen meets European-style helplessness – imports. Compared to August 2021, the total value of what goods Japan imported this past August was 50% more. By actual volume, just 3%.
Paying 50% more to get an additional 3% is economic suicide, particularly when what’s imported isn’t luxury goods or niche products, rather the very basics of basic living.
The fact this kind of imbalance has been kept up since last October (when global commodity prices, and the global “price” of the yen, really got going) but hadn’t even leaked out to consumers until this summer is the slimmest and only positive from Japan’s pandemic experiments.
It wasn’t until the end of May – 2022 – that the Japanese government finally lifted the last of its emergency “advisements.” Authorities had been unwinding those since February and March. Japan’s CPI went from 0.9% year-over-year in February to 2.4% by April (assisted by JPY’s plummet in between).
The official end of COVID did more for “inflation” than twenty-one years and twenty-six tries at QE. Let that sink in.
Help, however, is on its way, if only in the narrowest sense. While energy prices aren’t doing much for either Japan or Europe, the prices of nearly everything else already are. Shipping rates have collapsed, freight fees plummeting. Commodities crashing.
Among the last of those, the World Bank’s estimates (Pink Sheets) put base metals down almost 30% since March, all the non-energy commodities nearly 20% lower. These classes are highly attuned to forward-looking demand components, to the point each is lower despite supply constrictions that had up to recently dominated pricing.
Like a game of tennis, the ball swatted over the net back to the other side of the monetary court; global rate hikes plus the real and growing prospect for deflation suddenly the answer to all that inflation.
It’s all so absurd.
So is Japan’s plight which is not in any way unique. The whole world merely followed its example after 2008 and has paid the price for it with a pitifully moribund economy unable to generate even moderate consumer prices. Then hit with a worldwide non-economic catastrophe, the planet whipsawed from that extreme into the other.
There’s a word for all these symptoms piling up one on top of the next: instability.
Regardless of how they might attempt to, what central banks have done clearly hasn’t achieved the goal set out. Are central bankers to blame for COVID, or for what governments did in response to it? Of course not.
While 2020’s coronavirus response presented a unique, often devastating set of challenges, in one big picture sense it was, like QEs, nothing more than a bigger number attached to the same issues. A larger, more abrupt economic downturn in the same vein as QQE being a larger, more abrupt application of prior methods.
The predictable results aren’t growth and recovery, nor even inflation. We’re rocked by every form of instability there might be, including, not unrelated, geopolitics (just take a look at Russia’s GDP performance since, oh, 2008 and thereabouts).
The more governments and central banks do, the less stable the world ends up being. The less stable the world ends up being, the more bureaucrats and central bankers will do.
It is the only correlation which matters. And the reason for it is really nothing more complicated than how each of those have convinced the world everything they do is effective, if not too effective.
We are led to believe the world is guided by the steady hands of seasoned watchers and professionals, those who have attained great knowledge and have applied it to creating the greatest tools for the greater good. This view dominates not just the mainstream media, mainstream discourse itself.
Almost everyone believes this.
None of it is true. Not a single bit. It doesn’t make any sense even in its most basic construction. There isn’t the slimmest correlation between what they do and what they claim. Even the yen’s crash isn’t Japanese, a fate being shared all across the world.
If the entire earth seems more than a little unsteady these days, it’s because only a little of what’s said is anywhere close to accurate. Beginning with what everyone thinks about inflation. Is it the cure for deflation? Not a chance. Are the growing deflationary signals the remedy for this year’s “inflation?” No f-ing way.
But there will be more QEs. That much you can count on, because you can’t count anything else.
