R.I.P. Abenomics: Record Trade Deficit Now 15 Months in Row

The situation is laughable... Well, it would be if it weren't true: Abenomics is a dismal failure. Now, a record trade deficit of Japan for another record 15 months in a row!

From Zerohedge - Abenomics Humiliated Again As Japan Posts 15th Consecutive (And Record) Trade Deficit: 

Overnight Japan posted its latest, September, trade numbers which were absolutely abysmal, as the trade deficit rose to a fresh record high of 932 billion yen ($9.5 billion), the 15th consecutive monthly shortfall. The deficit for April-September rose to nearly 5 trillion yen ($51 billion), also a record for the first half of the fiscal year.

Why is this? Well, like I wrote in December of 2012 (I just love to brag that I was right and also see major news sites falling in line): Here's Why A Weak Yen Will Destroy Japan: 

...what will a weak yen certainly buy for Japan? Answer: How about a 10% increase across the board on energy imports?

From Forbes Magazines, please refer to: Japan's Energy Dependence 

Data from the Energy Data and Modeling Center (EDMC), Institute of Energy Economics, Japan, for 2008 published in the APEC Energy Overview (2010), paint a stark picture of Japan’s energy vulnerability: 

– Of total primary energy supply (508,327 kiloton of oil equivalent (ktoe)), 85 percent (433,725 ktoe) was imported.  The breakdown of primary energy was coal 23 percent, oil 44 percent, gas 17 percent, and other 17 percent.  

–For final energy consumption in ktoe, the industrial sector took 45 percent; the transport sector 24 percent; and other sectors 31 percent.  By type of energy:  coal 11 percent, oil 53 percent, gas 9 percent, and electricity and other 28 percent.  

Don't forget that these are 2008 figures - three years before the Fukushima Dai-ichi nuclear disaster. Things have gotten much worse since then. Now take all that imported oil and natural gas (and coal) and jack up the price 10%... What do you get?

Couple that sum with the 2% inflation rate targeted by the new government of Shinzo Abe and you get a collapse of the Japanese economy.

Hell, while I (sadly) chuckle over this news (as I've said a hundred times: "Math is a bitch" and "Data doesn't lie") I'll let my friends at Zerohedge kick the Abenomics fans a bit more... (Haven't I done that enough?!?!)

The worst news: Abenomics is now impacting the country so adversely, the boost in GDP as a result of consumption is now over thanks to a detraction from the net trade deficit: "As a result, the net export contribution to growth is likely to be weaker than we had expected, and it may be around zero in Q3, after 0.5ppt in Q1 and 0.3ppt in Q2." Make that negative...

...In short: with every passing month Abenomics does merely more of what it was meant to do - cripple the economy, destroy the workers and hurt end consumers, while the soaring stock market helps just the ultra wealthiest. Good job Goldman Sachs advisors to the BOJ. 

Goldman adds more data:

Another significant trade deficit in September on higher imports: The trade balance continued to show significant deficit at ¥932.1 bn, following the deficit of ¥962.8 bn in August. Export values came in at +11.5% yoy, slowing down from +14.6% yoy in August...

...Exports to Asia and Europe slow down, imports from China surge: Looking at exports by region, exports to the US remained buoyant in September in value terms, rising 18.8% yoy (+20.6% yoy in August) while there was a slowdown in exports to Europe (September: +14.3%, August: +18.1%) and Asia (+8.2%; +13.4%), exports to China also declined (+11.4%; +15.8%). Meanwhile, imports from China grew 30.9% yoy (+17.6% yoy in August), contributing to the growth of Japan’s overall import value by 6.7% points. Imports of electric machinery from China, telecom equipment in particular, are growing rapidly, with the September figure coming in at +55.8% yoy (+23.2% in August).

This is basically what was predicted... This should come to no surprise to anyone who:

1) Understands 3rd grade mathematics
2) Has a lick of common sense
3) Understands Japan's economic problems since the late 80s and how Japan has tried to deal with them.

We are watching a slow-motion train wreck...

... Can't wait to see how a Sales Tax increase magically makes things all better or how adding over $60 billion dollars to the deficit will help for the 2020 Olympics.

Go Abenomics!

The Facts: Data Doesn't Lie and "Positive" Writing

Yesterday I met a dear friend of mine. He complained about this blog. He said to me, "Why do you always write such negative things? Why don't you write more positive things about what Abe (Shinzo) is doing? Exports are going up!"

I replied, "Japan just had 14 months of trade deficits in a row for the first time in modern history. Last month was the worst trade deficit in history. Exports went up 14% but that was after more than a 25% decrease in the value in the yen since October 2012 (15% this year alone), which actually, considering accrual accounting, means that exports went down 9% since Oct. 2012."

That was all I said.

BNP Paribas just reported that they estimate that Abenomics will fail. Please refer to: BNP Paribas Gives Abenomics Only 10% Chance of Success? 

I write this stuff because (may I brag?) I'm usually ahead of the curve. I've been complaining about Abenomics since October of 2012... It, seems to me, was easily predictable what was going to happen. I'm glad to see big financials finally coming around and supporting my views.

I don't know how anyone can put on a happy face and spin that into anything positive for the economy... But people do. I seriously doubt that reporting this sort of thing in a positive spin makes it any more potable. 

Look, there's responsible fiscal policy and then there's what the Japanese government (and US government, EU, etc.) are doing: irresponsible deficit spending. Japan has been doing what Abe is doing for over 20 years. The only difference is that Abe has put the deficit spending into hyper-drive.

Over twenty year of deficit spending and infrastructure projects? Look where it has gotten Japan today.

Folks, you couldn't deficit spend like this on your own home and personal finances; you'd go bankrupt. This isn't rocket science. No matter what the government says or how they try to spin things, this is simple math. Mathematics are a bitch and they are consistent as hell. Two plus two will always equal four. It doesn't change.

Japan's low interest rates and easy money policies on steroids will not yield any different results than they already have.

Yahoo reports a week ago in: Analysis - Japan faces record-long trade deficit, little sign can reverse trend: 

Japan is on course for its longest run of trade deficits, effectively marking the end of the nation's decades-long reliance on exports from the likes of electronics giant Sony and automaker Toyota as a driver of growth and income. Trade figures due on Thursday are likely to show that Japan produced its 14th consecutive deficit in August, matching a 1979-1980 record run during the global oil shock. Economists say the deficits will continue. When Prime Minister Shinzo Abe's reflationary policies weakened the yen after he took power last December, many economists had anticipated a so-called J-curve effect, where a spike in import costs would over time be more than offset by gains in exports. But a closer look at trade statistics shows that the currency's 15 percent decline since the beginning of this year has failed to produce the export turnaround needed to bring the trade balance back into the black and there is little indication it will do so in the future.

Do we need a positive spin on that? How about if they added, "Wonderfully" as the first word in the paragraph?

Like I said, facts and data don't lie. People have lost their ability to take things into perspective. Here's some perspective for you folks who think what Abe is doing is good:

In The Money Stocks reports in Quantitative Easing On Steroids

"The Bank of Japan has stated that they will implement monthly bond purchases in the amount of 7.5 trillion yen (US$78 billion) per month in an attempt to increase inflation to two percent within the next two years. Currently, the United States is buying $85 billion worth bonds every month. It is important to note that Japan's economy is one third of the size as the United States. So it is safe to say, Japan has the printing presses on turbo at this time."

Get that part? Bank of Japan is implementing bond purchases at $78 billion (USD) per month. The Japanese economy is one-third the size of the US. People are up in arms and complaining about so-called "Quantative Easing" in the USA and how that is destroying the US economy... Yet, in comparison of apples to apples percentage of GDP, Japan is spending three times the US!

How does anyone put a positive spin on that? Let's try multi-billionaire Marc Faber... He says of the USA:

"The endgame is a total collapse, but from a higher diving board. The Fed will continue to print and if the stock market goes down 10% they will print even more. And they don’t know anything else to do. And quite frankly, they have boxed themselves into a corner where they are now kind of desperate."

Now, multiply that times three for Japan.

Great! Next up, how does anyone put a positive spin on this chart? The numbers don't lie; politicians and economists do.

For the eight month period, the trade deficit hit a record of ¥6.8 trillion, up 66% from the same period in 2012, and up 332% from 2011. During that period in 2010, Japan had a surplus of ¥4.2 trillion! Japan’s trade fiasco is on a steep downward slope. August was the worst August ever, July the worst July ever, June the worst June ever.... There’s no discernible turning point on the horizon. See more: modernmarketingjapan.blogspot.jp/2013/09/bnp-paribas-gives-abenomics-only-10.html

Like I said, I don't know how to put a positive spin on this sort of data. I'm not talented enough to do that. I do know that when someone reads this and then they get frustrated because "It's all negative news (on this blog)" Then they are making the mistake of attacking the messenger and not the message.

Ignoring bad news and facts and data do not make them disappear.

When a drunk or drug addict or someone with a gambling addiction has a problem, the first thing they have to do is admit it and then look for ways to do something about it. I am merely reporting the facts.

When someone does comes up with new math that can make these bad numbers magically become good, then let me know.

If you want to read happy stuff about the economy, you've come to the wrong place... Hopefully, that situation will only be temporary... But at the way way Shinzo Abe and Japan is going... That won't be soon.

Oh, that sounds negative too! OK. How about this? 

"In a positive note: If you want to read happy stuff about the economy, you might not be in the best place, but you could do worse!. Hopefully, that situation will only be temporary... But, I am absolutely POSITIVE that, at the way way Shinzo Abe and Japan is going... That won't be soon."

But as my wife would say, "If you're so smart, why ain't you rich?"

Adjusted For GDP, Japan's Stimulus Will Be Twice the Size of America's!

I just read some more alarm bell ringing over at Zerohedge. Please refer to "Protecting Yourself From Japanese Insanity":

Sayonara to Japan 

First to Japan. You've got to love mainstream media, investors and stockbrokers. The Japanese central bank's plans to end deflation have been widely greeted as having surpassed expectations. They're described as "bold", "inventive" and just what Japan needs after sitting on its hands for 20 years. Nowhere have I seen words such as "stupid", "insane" or "half-witted". Because anyone with a brain can tell you that Japan's plans will have terrible consequences, whether they succeed or not.  

First, let's look at what Japan intends to do:

• It will double current stimulus to 7.5 trillion yen (US$81 billion) per month. This means buying the equivalent of 70% of the total long-term government bonds in markets.
• It will buy Japanese government bonds with maturities of up to 40 years, seeking to push the average duration of Bank of Japan (BoJ) bondholdings to seven years, from the current three years. 
• It will increase purchases of financial instruments linked to the stock and property markets to lift the prices in those sectors and encourage other investors to buy them. More specifically, the BoJ will increase purchases of exchange traded funds (ETFs) by 1 trillion yen per year and real-estate trust funds (REITs) by 30 billion yen per year.
• The BoJ put a timeline of two years on its prior promise to achieve 2% inflation. 

To put this into some context, Japan's stimulus of US$81 billion a month compares to the U.S.' own US$85 billion program. But Japan's economy is much smaller than the U.S.. Adjusted for GDP, Japan's stimulus will be twice as large as America's. (Emphasis mine).

I am very pleased to see enough people really starting to get the message; we are heading for a disaster, folks. In the article above, though, the writer does not mention what happened right here in Japan the last time this sort of money printing and Keynesian nonsense was tried in the 1930s.

Look folks, it's common sense that we cannot create wealth out of thin air just by printing money; if we could, then why doesn't the government just print a million dollars and give it away to every citizen of the country? That should make us rich, right?

Well... It won't. Forget what the economists say; this is common sense. Anyway, as I said, the writer above forgets to mention what happened in Japan the last time this was tried. So, for that, I thought I'd reprint this past post in full for you to read again. Here you go!

Cyprus is the Opening Act for Japan's Coming Calamity: Government Debt to GDP in Japan is Now 245%!

I sit and read about the disaster befalling the people of Cyprus. I've been wondering when this is going to hit Japan. It will.

I was discussing this banking crisis and the tax on savers with my wife. It seems the Japanese are still firm believers in the sanctity of their savings in banks. 

I like taking my girlfriend to drink and see the flowers

I really wonder why they think this. It wasn't that long ago that the banks of Japan closed one day, and when they reopened, their money had been massively devalued. My wife even said to me that she remembers her grandfather telling her,

"One day the banks all closed and when they reopened, 100 yen was no longer worth 100 yen. It was worth 10 yen."

I gawk when my wife tells me this. I've heard this story from other older Japanese too. But still, the younger people today seem oblivious to what is coming. Savings in the bank seem sacred... (Even though the interest on those savings is some absurd rate of something around one-percent...)

The last time Japan had a "bank holiday" like Cyprus is having now - and many other countries are now considering - very bad things happened as a result of it.... One thing was a little incident folks do remember well until this day... You might have heard of it? It was called "The Second World War." 

Wikipedia says:

The Japanese economy shrank by 8% during 1929–31. Japan's Finance Minister Takahashi Korekiyo was the first to implement what have come to be identified as Keynesian economic policies: first, by large fiscal stimulus involving deficit spending; and second, by devaluing the currency. Takahashi used the Bank of Japan to sterilize the deficit spending and minimize resulting inflationary pressures. Econometric studies have identified the fiscal stimulus as especially effective.[67] 
(Effective? Ha! Keynesians editing Wikipedia! - Mike)

The devaluation of the currency had an immediate effect. Japanese textiles began to displace British textiles in export markets. The deficit spending proved to be most profound. The deficit spending went into the purchase of munitions for the armed forces. By 1933, Japan was already out of the depression. By 1934, Takahashi realized that the economy was in danger of overheating, and to avoid inflation, moved to reduce the deficit spending that went towards armaments and munitions.

This resulted in a strong and swift negative reaction from nationalists, especially those in the army, culminating in his assassination in the course of the February 26 Incident. This had a chilling effect on all civilian bureaucrats in the Japanese government. From 1934, the military's dominance of the government continued to grow. Instead of reducing deficit spending, the government introduced price controls and rationing schemes that reduced, but did not eliminate inflation, which would remain a problem until the end of World War II.

A few paragraphs above you can see where some nutcase wrote that the Keynesian economic policies were "effective." Yep. Real effective. You can read the results of these policies in the next paragraphs: deficit spending on munitions resulting in a 'boom bust cycle' that lead to a coup de etat and, eventually, World War Two. Yeah. Real effective. 

I am of the impression that things are really falling apart and going to hell in a handbasket here in Japan. 

I wrote about that in Japan: The End of an Era and last year in Here's Why A Weak Yen Will Destroy Japan:  

The clowns in the LDP think a weak yen will rescue Japan's faltering economy by making exports cheaper... Sounds good... That is, if there anyone to buy Japanese goods.  I fear that the weaker yen will be the last straw in breaking the Japanese Economy. Here's my reasoning why... 

China and Japan are in a row over islands. Boom! Down goes exports to Japan's biggest trading partner. Please refer to the NY Times article, "Japan Trade Suffers as China Ties Deteriorate":

"Shipments to China, which is Japan's biggest trading partner, tumbled 14.1 per cent as demand dropped for Japan-branded products..."

Also refer to Japanese Car Sales Plunge Amid China Rage.

Europe is in no condition to be big spenders on anything as Euro states are already in deep recession.

The USA isn't in good shape either as it is in recession too and Japanese cars aren't selling well due to Fukushima and other issues.

Gee? So what will a weak yen certainly buy for Japan? Answer: How about a 10% increase across the board on energy imports?

Recent figures show Japan's trade deficit hitting new records. 

From Testosterone Pit:

Japan's trade deficit in February jumped to ¥777.5 billion. Exports dropped "unexpectedly" by 2.9% from prior year, despite Abenomics. Imports surged 11.9%. Eighth monthly deficit in a row, worst since 1979... This year in January, the trade deficit hit a new record of ¥1.63 trillion, and now ¥777 billion.  

When things start to deteriorate, they begin to unravel quickly. Just this morning on ZeroHedge, I found a writer who makes my skepticism seem like I am the eternal optimist! 

Please refer to quotes from: Forget Cyprus, Japan is the Real Crisis:

Forget Cyprus. A much bigger story in the coming weeks and months will be in Japan, where one of the greatest economic experiments in the modern era is about to begin. A country where government debt even dwarfs those of Europe's crisis-ridden nations, Japan will attempt to inflate its way out of a 23-year deflationary spiral.

It's widely expected that the BoJ will expand its 101 trillion yen (US$1.06 trillion) asset buying program by more than 10 million yen. Also, it will start buying Japanese government bonds with remaining maturities of up to five years by scrapping the upper limit of three years by the end of April.

Why Japan will fail

The subtitle indicates where I stand on the matter. Given its over-indebtedness, Japan has few good options left. But the policies being pursued by Shinzo Abe will fast-forward a major debt and currency crisis. It's a matter of when, not if.

Government debt to GDP in Japan is now 245%, far higher than any other country. Total debt to GDP is 500%. Government expenditure to government revenue is a staggering 2000%. Meanwhile interest costs on government debt equal 25% of government revenue.

There's no way that Japan will ever repay this debt. It has two main options: either go through extraordinary pain by cutting back on government expenditure or print substantial money to inflate some of the debt away.

Japan is choosing the second option, as are most governments around the world. It would rather print money than cut spending and doom the economy to a substantial contraction. The choice to print money though will result in an even more painful and drawn-out outcome.

It's inevitable that the yen will fall further from here, potentially much further. I've previously said that the yen at 200 or 300 on the dollar would not surprise. This could prove optimistic.

It also seems inevitable that Japanese interest rates will rise and bonds will sell off. Yields have to rise to just 2% for interest costs on government debt to take up 80% of government revenue. The jig will be up well before that though.

Currency wars to begin in earnest

Talk of currency wars has been on the backburner for a few months. Expect that talk to heat up and become a reality as Japan ramps up stimulus in the next two weeks.

The likes of South Korea and Taiwan are already suffering from the sharp fall of the yen. They, and many others such as Germany and emerging countries, aren't going to sit by and watch their exporters get priced out of the market by the Japanese. They'll retaliate with currency depreciations of their own and the currency wars will be on in earnest. But the question is whether these countries will be able to keep up with a hyper-inflating Japan. I highly doubt it.

The yen at 200 ~ 300 per one US dollar? And "that could prove to be optimistic?" Wow! 

I've got two things to say about that. One is the February 26th Incident that was already mentioned in the Wikipedia reference earlier in this article. 

Specifically about the February 26 Incident, Wikipedia says:

The February 26 Incident (also known as the 2-26 Incident) was an attempted coup d'état in Japan on 26 February 1936. It was organized by a group of young Imperial Japanese Army (IJA) officers with the goal of purging the government and military leadership of their factional rivals and ideological opponents.

Although the rebels succeeded in assassinating several leading officials and in occupying the government center of Tokyo, they failed to assassinate Prime Minister Keisuke Okada or secure control of the Imperial Palace. 

Wikipedia also says about one of the factions involved in this coup:

The Kōdō-ha emphasized the importance of Japanese culture, spiritual purity over material quality, and the need to attack the Soviet Union 

There's that nasty talk about war again. 

And the second comment I want to make about this entire mess isn't really a comment, it is an observation and a fact. Here is a small 5 gram gold bar... In 2008, this 5 gram bar of gold sold for ¥8,900 yen (at today's rate, that is about $94 USD)... As of yesterday, March 23, 2013, it sold for ¥27,924 (about $295.68 USD). That's a 313% increase.

Today the Japanese yen and US dollar rate is at 94.5 yen to one dollar.

This isn't rocket science, folks. The Japanese government has publicly announced inflationary policies and actions to devalue the currency.

In 5 years, gold - priced in yen terms - has tripled*... Now, reading the above is there any reason to not expect that this sort of climb is unreasonable to expect over the next 5 years? If the amount of money doubles in the next year or so, isn't it reasonable to assume that the price of gold will do the same?

We are heading for some very serious troubles folks. Prepare yourself as best you can. 

_____________________________

Got Gold or Silver? Where to Buy Physical Gold or Silver in Tokyo or try what my friend Mark recommended: http://www.olympic-gold.co.jp/

Rob also chimes in and recommends these two shops: http://gold-ichiba.com/ & http://www.coins.co.jp/

*Thanks to my friend, Jeremy Irwin

Japan is Facing a Currency and Economic Meltdown

There's an awesome article over at Zerohedge about Japan's current economic malaise. Please refer to, Japan Is Now Another Spinning Plate in The Global Economic Circus: 

For those who are in a hurry today, the bottom line is that Japan is in serious trouble right now and is a top candidate to be the next black swan. Here are the elements of difficulty that concern me the most, each one serving to reduce Japan's economic and financial stability:

• The total shutdown of all 54 nuclear plants, leading to an energy insufficiency

• Japan's trade deficit in negative territory for the first time in decades, driven largely by energy imports

• A budget deficit that is now 56% larger than revenues (!!)

• Total debt standing at a whopping 235% of GDP

• A recession shrinking Japan's economy at an annual rate of 2.3%

• Renewed efforts underway to debase the yen

Oh, and let's not forget that Greece is about to default day after tomorrow.


If you live in Japan, I hope that you have at least two weeks worth of food and water stored up (you should have that anyway - especially if you have children - as this country has lots of earthquakes). Preferable, if you have a place to put it, two months is best.


This article is coming hot on the heels of a post I wrote about being positive. Well, my friends, trust that it is much easier to be positive when you are prepared.


What should the government do? Well, twenty years of easy credit and deflationary policies haven't worked. Why don't we try what worked after the war to create the greatest economic recovery the world has ever seen? Please refer to: In 1949, Japan Started on the Road to Prosperity by Eliminating Sales Tax.


Raising taxes and continued debt spending has gotten us to where we are today. Devaluing the currency and taking on more debt won't help us. More debt will not solve a debt problem. That's basic math.


If you owed $10,000 on all your credit cards, would it help you if you got another credit card and borrowed $10,000 to pay off your old credit cards?


Why can't the government see this?


Devaluing our currency will only punish the people and the savers. We need people to save in order to invest.