Tag Archives: Japan

The Japanese Economy: Harikari in Slow Motion

Motivated by three recent articles by Zero Hedge and Mike Shedlock: In Shocking Finding, The Bank Of Japan Is Now A Top 10 Holder In 90% Of Japanese Stocks, Bank of Japan Owns Over Half of Japanese ETFs; Why Stop There?, and Bank of Japan Corners 33% of Bond Market: All Japanese Bonds, 40 Years and Below, Yield 0.3% or Less, we decided to take a closer look at the Bank of Japan (BoJ), particularly its balance sheet.

There is widespread agreement that this will end badly. No one, however, has any idea whether it blows up this month, this year or whenever. In this article, we explain the the nature of the problem and possible signs of the tipping point being reached. When it does blow, the shock waves will cascade through all economies.

Harper Blew It – Again

We have been tracking the final days of the Asian Infrastructure  Investment Bank (AIIB) drive for prospective founding members (PFM) (read Harper’s Days Are Numbered). At the close of the application process today, March 31, the approved members and the applicants for membership stand at 53 countries as shown below:

You Need a Strong Russia

With the collapse of the USSR, the US emerged as the single global superpower. The main threats to its power and influence are the regional hegemonies of Russia, Iran and China. Understanding how the US is dealing with each will help us to understand why we need a strong Russia.

Kyle Bass on Japan: “It All Feels to Me That It’s Right Now…”

We recently featured an essay on Japan titled Japan: Is This a Windshield Which I See Before Me …. It was based on an interview with Kyle Bass. Here is a new interview (hat tip Zero Hedge) with Bass and we extract some of the key points he makes.

Key points are:

  • Japan has never gone through this kind of Schumpeterian period of creative destruction that needed to happen from the financial perspective…
  • The yen will weaken significantly … a loss of confidence in the currency …
  • Interest rates will move uncontrollably once the yen starts to move in a disorderly way.
  • A third of the population is over 60 and almost a quarter over 65. I think they’re going to lose 30 to 50% of their savings. The social fabric will be torn.
  • From Zero Hedge‘s synopsis: At a certain point in time, “nationalist interest takes over the global [G7] kumbaya,” and that is occurring now. If monetary policy is the only lever we have to throw then we’re all in a lot of trouble.
  • There is no way out for Japan in my opinion. It’s a matter … of when and not if…
  • Until the bond rates move and king of call us out we’re going to keep spending.
  • There will be a dramatic spike in (cost-push) inflation in Japan in the next 18-24 months. The US and maybe even Europe are years away.
  • Being complacent today is probably the single most riskiest time to be complacent in our generation.
  • The insidious nature of a run-away inflation is it bankrupts the middle class. … The rich stay rich, the middle class gets wiped out and the poor stay poor.
  • It means social unrest globally.

Japan: Is This a Windshield Which I See Before Me …

Consider the fate of a bug, one quarter inch long, hovering over a highway and facing towards a windshield approaching at 60 miles per hour. Ignoring the effect of slipstream effects coming off the windshield, it will take 237 microseconds for the bug to be converted completely into a splat (the math is simple). In his January 22, 2011 essay titled The Unsustainable Meets the Irresistible, John Mauldin said that Japan is a bug in search of a windshield. Which brings us to this seminar with Kyle Bass (58:18 minutes). Kyle Bass is the smartest man we read. We recommend you listen to the whole seminar.

Click the image below from Zero Hedge for the full presentation (unembeddable):

Flash Point: A Game Changer. Japan Extracts Methane Hydrate

As Ambrose Evans-Pritchard reports: Japan cracks seabed ‘ice gas’ in dramatic leap for global energy. Just as the shale gas revolution was taking hold we appear to be on the verge of a much larger energy revolution. Methane hydrate, a methane molecule trapped in a molecular water cage, is thought to exist in appropriate temperature and pressure environments, such as deep sea deposits, that comprise more than half of the theoretical carbon fuel sources in the world. Figure 1 is a chart of the breakdown of the global occurrence of carbon energy sources with methane hydrate comprising more than half. This is a resource much larger than shale gas.

Figure 1. Distribution of organic carbon in the earth.

Source: .

Of the known occurrences, Japan has an exceptionally rich potentials as shown  in Figure 2.

Figure 2. Worldwide distribution of methane hydrate [5].

Source: Science Direct.

As Evans-Pritchard notes, Tokyo hopes to bring the gas to market on a commercial scale within five years. This is a very short time frame for a new energy source to come onto the market. If it is realized, it will have immense impact on select national economies that have the resources to develop. The geopolitical implications are also enormous. This is the early stage of the revolution and commercial exploration has not really begun yet. The current energy superpowers such as the OPEC countries and Russia will find their influence waning. The loss of energy income may destabilize parts of the Mid East.

Japan’s economy in particular may be revitalized. Countries such as Canada that are net energy exporters and that have no appreciable alternative base of revenue such as manufacturing will go into decline.

Flash Point: Yappy Little Dogs

We have been monitoring although not writing about the tensions in the South China Sea and between Japan and China particularly. We have decided to comment.

Aside: we have observed that obnoxiousness and aggressiveness in dogs is inversely correlated with their size. In particular, we had a neighborhood pack  of three Shih Tzu mongrels that would surround you yapping and snapping at your heels.

It occurred to us that the recent rise of belligerence in Japan when compared to the rise of belligerence in China. Was an apt comparison. Japan is a comparatively small nation geographically although its population ranks 10th in the world. Still this is less than one tenth the population of China. And Japan ranks third in GDP, just behind China.

It is the demographic imbalance, however, that should muzzle Japan. China’s population in 2010, had a median age of 34.2 whereas Japan had a median age of 44.7. That’s a ten year difference. Japan cannot afford a war with China. A significant loss of young people in a war would have major economic implications down the road simply by its impact on the median age of the workforce – robots excepted. For a discussion of Japanese demographics see: Zero Hedge Guest Post: How Demography Is Changing Japan.

World Watch: Keep an Eye on Japan

We have long ago discounted what passes for news in the MSM (Main Stream Media) as being mostly fluff. By all means watch it. It’s all feel-good stuff. Learn how little Betty Jones rescued a chipmunk or how the latest run for something raised $13 for some charity. But of national or global events of import you will get nothing that is not long past its ‘best before’ date if at all. As an experiment, we are going to try identifying one issue every Monday that we think is of major importance and likely to have a major effect on all of us.

So we note today’s article by Ambrose Evans-Pritchard, Revolutionary Japan is suddenly the centre of world affairs, and Zero Hedge yesterday published Japan Warns It May Fire On Chinese Aircraft Over Disputed Islands; China Retorts: “There Will Be No Second Shot”. We have previously noted the Japan/China conflict as an event of concern. It appears it may be escalating. The two countries are already involved in a low-level trade war. This could easily expand into a currency war and ultimately a hot war. In addition, Japan has a number of economic and fiscal issues that pose a threat to the global economy and markets.

In short, Japan we rate as a high probability to be the epicenter of a major global event this year.

Flash Point: The Eye of the Hurricane

The holiday season is all but over and we are left with a strange sense of quiet leading to disquiet. There appears to be nothing in the news now that the fiscal cliff deal has been reached. A discussion with friends last night reviewed what we think are a few major issues – none new – will heat up in 2013. This is a watch list not a forecast list:

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