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Tuesday, February 23, 2016

Fujimaki: Japanese Hyperinflation! (Again!)

It's been fairly quiet on the JGB collapse front; apparently, people got tired of losing money shorting the things. However, this has not stopped Takeshi Fujimaki from re-iterating his Japanese hyperinflation call.

Japan has ballooning debt and the BOJ is financing debt, that’s the problem,” Fujimaki said. “The yen will weaken further and the risk heightens of a hard landing. There is no debate on an exit policy, so once the economy improves, it will bust and there will be hyperinflation. 
The reporter noted that he has been calling for a JGB selloff for 20 years, but mercifully did not mention his "Hyperinflation by 2015!" call.

This is perhaps a sign that the JGB bears may start waking up from hibernation. Although they will probably have to develop some new material; the "debt-to-GDP ratio is really high!" story is starting to sound somewhat lame.

Looking back at my original article from 2013, I noted the commentary below. It seems bearishness on Japanese growth was the right call...
But to end off on a more serious note: this is part of a push to raise the Japanese consumption tax, which appears likely to occur. The theory is that the planned fiscal policy shifts are supposed to be neutral for growth, as there will be offsetting stimulus undertaken. I do not have a fancy model of the impact of their proposed fiscal changes, but it seems that they are effectively replacing “high multiplier” spending by “low multiplier” spending. In order for the impact to be neutral on growth, the fiscal deficit would have to be larger. Additionally, I am skeptical that businesses will take up investment incentives in the current sluggish growth environment – especially if domestic consumption falls due to the tax hike. And so, it appears highly possible that Japanese policymakers will drive their economy into recession yet again due to a foolish focus on fiscal ratios.

(c) Brian Romanchuk 2015

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