Japan’s Chain Of Events: Stagnation -> Monetization -> Devaluation -> Stabilization -> Retaliation -> Hyperinflation
As the world’s equity markets prepare to rally on the back of yet more central bank printing as Japan’s Shinzo Abe takes the helm with a 2% inflation target, to be announced momentarily, and a central bank entirely in his pocket, The Telegraph’s Ambrose Evans-Pritchard suggests a rather concerning analog for the last time a Japanese minister attempted to salvage his deflation/depression strewn nation: the 1930s ‘brilliant rescue’ by Korekiyo Takahashi, who removed Japan from the Gold Standard, ran huge ‘Keynesian’ budget deficits intentionally, and compelled the Bank of Japan to monetize his debt until the economy was back on its feet managed to devalue the JPY by 60% (40% on a trade-weighted basis).
Initially this led to exports rising dramatically and brief optical stability, but the repercussion is the unintended consequence (retaliation) that the world missed then and is missing now. Though the economy appeared to stabilize, the responses of other major exporting nations, implicitly losing in the game of world trade, caused Japan’s policies to backfire, slowed growth and left a nation needing to chase its currency still lower – eventually leading to hyperinflation in Japan… and Takahashi’s assassination.
And with no Martians to export to, why should we expect any difference this time? and how much easier (and quicker) are trade flows altered in the current world?
Via The Telegraph:
Premier Shinzo Abe has vowed an all-out assault on deflation, going for broke on multiple fronts with fiscal, monetary, and exchange stimulus.
What happened last time the a Japanese minister tried to desperately devalue his nation to growth?