Friday, April 21, 2006
MoF v. BoJ: Financial Kabuki Theatrics
I read it once. I blinked more times than I could count (an involuntary form of expressing disbelief and incredulity), then re-read the text as reported by Bloomberg: MoF Chief Tanigaki "urged policymakers to damp expectations of interest rate increases after the government borrowing costs rose to the highest since 1999." (The JGB 10-year by the way now yields a whopping 2%). "Well, matey", I thought, "could it be other than thus when you've been running fiscal deficits surpassing 7% of GDP for the past five years, and by optimistic observertions are forecast to remain at least at 6.5% next year and 5.7% in 2008 despite heady recovery, (unless action is taken to the contrary)!? The gall!
Yet there remains a stylized tension between the BoJ's Fukui and the MoFs Tanigaki that is reminiscent of a Kabuki play. Fukui moves towards ending ZIRP; the conniving Tanigaki uses smoke and demagoguery to make critics and the people fear such a change. Fukui goes silent, only to reappear and try his hand again, but is rebuffed yet another time by Tanigaki, who seems to be winning the not-so-bloody battle for the hearts & minds of policy wonks who care about such arcanely boring stuff.
You see, in reality (and note I am not a Japan-basher as I generally admire them), Japan is behaving badly. It is continuing with ZIRP policies that are enlarging and intensifying global imbalances - especially in the USA, fueling asset bubbles and beggar-thy-neighbor employment gains from other OECD nations, and, threatening the stability of the post-Bretton Woods world financial order. Not that the USA is any less of a rogue (at the opposite end of the spectrum), or doing anything to help itself (e.g. consumption taxes, energy taxes, higher income taxes, investing in education, public transport, universal healthcare, etc.). But this post is not about lambasting the USA (which is not terribly sporting these days anyway), but about the selfishness of Japan, the LDP, and Chief MoFo Tanigaki.
Surely it's ass-backwards - not to mention rather disingenuous - to assign blame for the problem to "the rate of interest" the govt is paying on its borrowings (especially when they are but a mere 2% at the long end), rather than as is obviously the case, the quantity of its growing and not-so-insubstantial obligations outstanding. If Tanigaki was the least bit cocnerned (as a Chief Financial Officer of a nation should be) about the state of said nation's financial affairs (i.e. the State's Balance Sheet) in which he/she is charged, he would be focused upon how to raise revenues (i.e next FY's Income Statement for his undertaking, given the robust state of the Japanese economy . Instead, detached observers and both "victims" and participants in RealFinanz (the financial equivalent of RealPolitik) must suffer through the painful mock-theatrics of appearing to be on the verge of doing something that should have been done a long time ago, but instead, delays and debates further, and endlessly, in order to gain yet additional pecuniary advanatge at the expense of the other players.
"Our basic understanding is that rapid gains in interest rates are undesirable because mild deflation still persists" said Tanigaki.' PARDON ME!/!/ On what planet has he been living? In three years, (in both US dollar and Japanese Yen terms), oil is up 200%, Zinc & Copper! are up 400%!; Silver & Gold 300%! Steel prices have more than doubled, cement prices, office rents, airline tickets, the price of office buildings, all have positive and accelerating price trajectories. The only thing that is not caught in the swift current of price increases are fluffy stuffed animals, brassieres, or pairs of cotton socks, manufactured in China. These offshored manufactured goods and the odd service suffering from over-investment (cellular phone service) are the few items in one's budget that may have fallen in price from the perspective of the consumer in Nagoya. But c'mon, seriously now, this should not be confused with deflation, as we are now in the year 2006 and virtually every manufacturer of common items subject to price competition has opened a plant somewhere in China or Indonesia, and BOTH Tanigaki and Fukui know it full-well.