Krugman Visits Japan and Sees...

...Deflation.

Paul Krugman writes at NYT:

Right now, Japan is struggling to escape from a deflationary trap...

Here are the facts:

The Inflation Rate in Japan is reported by the Ministry of Internal Affairs & Communications. The inflation rate in Japan was recorded at 3.20 percent in September of 2014.

Year-on-year, the biggest price increases were reported for: fuel, light and water (+5.3 percent); food (+5.1 percent); furniture and household utensils (+4.2 percent); culture and recreation (+4.7 percent); transportation and communication (+2.4 percent); clothes and footwear (+2.8 percent) and education (+2.2 percent). Cost of housing grew only 0.1 percent.

I will leave it to the reader to decide if Krugie is delusional or deliberately misleading. Whatever, it is not healthy.

Brad DeLong: I Have Been Wrong, Wrong, Wrong....

Brad DeLong lists at his blog eleven things that he has "gotten really, really wrong so far" in his career.

I think many of his new views as implied by what he says he got wrong are wrong also, but there are 3 where I agree, at least in part, that he now sees the world more clearly.He writes:

My belief that central banks had the tools, the skill, and the political will to stabilize economies at high levels of employment and low levels of inflation...

In the above wrong, he goes on to talk nonsense about the necessity for fiscal policy to fix what he thought the Fed could fix and now realizes he was wrong about. But, it is good to see that at least he doesn't see the Fed as God, anymore.

Another wrong he lists is:

Japanese Prime Minister Yukio Hatoyama Will Announce His Resignation

Calls have been growing within the Democratic Party of Japan for his resignation after a recent plunge in the cabinet's approval rating and his awkward handling of the relocation of a U.S. military base in Okinawa, reports WSJ.

Polls this week showed that support for. Hatoyama's government had fallen to around 20%, compared with levels above 70% in September. The main cause of the collapse in polls was the result of his backtracking last month on a pledge to relocate U.S. troops stationed on Okinawa.

The U.S. clearly muscled him, and now the people of Japan have muscled him out.

Japan Approves Record $1 Trillion Budget

Japan's parliament has approved a record $1 trillion budget for the fiscal year that starts in April, with an all-time high of 44.3 trillion yen ($490 billion) in new bond issuance.

Japan's budgets have generally been financed domestically. as opposed to international buyers of the debt. At some point you have to wonder just how much fattened debt you can stuff down the bellies of Japan's sushi eaters, who continue to be great savers.

Public debt is already nearly twice the size of Japan's GDP, the highest ratio in the industrialized world.

No Captial Gains Taxes for Private Equity in Japan?

Is Carlyle Group about to make a big footprint in Japan?

Japan may eliminate a 40 percent capital gains tax for most foreign investors, a move the government expects could spur Middle Eastern sovereign funds and private equity firms such as Carlyle Group to pump 10 trillion yen ($110 billion) into its sagging markets, Bloomberg reports.

The trade ministry plans talks over the coming months with buyout firms and state funds from Saudi Arabia, the United Arab Emirates, Qatar and Kuwait to outline proposed changes to its tax regime, said a senior ministry official working on the matter, who declined to be named because details haven’t been finalized, said Bloomberg.

This should be expanded to more than private equity insiders, but competitive tax cuts would be fun.

Europe and Japan Officially in Recessions

From The Independent: It's official: eurozone collapses into its first recession:

Europe's economy officially collapsed into recession for the first time since its inception during the third quarter ... The eurozone, made up of the 15 countries that use the euro as their primary currency, shrank by 0.2 percentage points between July and the end of September, having contracted by the same margin during the preceding three months as well. ...

Germany and Italy, the continent's largest and fourth largest economies, dragged the eurozone down – both slipped into recession during the third quarter. Spain also suffered its first quarter of negative growth in 15 years. However, France just managed to maintain a positive growth rate.

From Bloomberg: Japan's Economy Shrinks 0.4%, Confirming Recession:

Japan's economy, the world's second largest, contracted more than economists expected in the third quarter, confirming it entered its first recession since 2001 as companies cut back spending.

Gross domestic product fell an annualized 0.4 percent in the three months ended Sept. 30 ...

The United States has not yet been officially declared in recession, Jeffrey Frankel who directs the program in International Finance and Macroeconomics at the National Bureau of Economic Research, where he is also a member of the Business Cycle Dating Committee, says:

The weight of evidence is now overwhelming: We are currently in recession.

Nikkei Closes Down 9.6%

In Japan, the Nikkei 225 index plunged 9.6 percent, hitting its lowest level since May 2003. The Kospi in South Korea plummeted 10.6 percent, falling 1,000 points and heading for a total decline this year of more than 50 percent.

Japanese Stocks Rocket

First comes money printing fueled higher stock prices, then will come the money printing fueled inflation.

The Nikkei 225 surged more than 14 per cent to 9,447.24, while the broader Topix rallied 14 per cent to 956.30. Stocks gained more than their Asia-Pacific peers, playing catch up after yesterday’s national holiday.

Wild Overnight Market Activity

Asian stock markets reversed huge losses on Thursday as central banks provided massive amounts of liquidity to the world financial system.

In Hong Kong, the Hang Seng fell 7.7 per cent during the morning session. News of the intervention came in the last of half an hour of trading in the afternoon and the index rallied to show a gain of 1.2 per cent on the previous close within twenty minutes. But the benchmark then fell back in the next ten minutes to close almost unchanged on the day, down 0.03 per cent at 17,632.46.

The MSCI Asia Pacific Index was 1.9 per cent lower at a three-year low of 108.47 by early evening in Tokyo, after earlier dropping as much as 4.3 per cent.

In Singapore, the Straits Times Index closed 0.4 per cent higher at 2,429.58 after earlier falling as much as 4.6 per cent. In India, the Sensex’s early 5.3 per cent fall had turned into an 0.3 per cent gain by mid afternoon in Mumbai at 13,297.89.

-EPJ Newsdesk

Japan Banking Stocks Post Worst Fall Since 1987

The fallout from the collapse of Lehman Brothers caused panicked selling of banking shares in Tokyo.

In its bankruptcy filing in New York, Lehman said it had outstanding loans worth $1.6 billion to seven Japanese banks, including Tokyo-based Aozora Bank, to whom it owes $463 million. Lehman also said it owed $289 million to Mizuho Corporate and $231 million to Shinsei, among other banks.

The disclosures helped spark a sharp sell-off of Japanese banking stocks on Tuesday [Monday was a holiday] in Tokyo, which as a group posted their biggest one-day loss since 1987. The declines were led by Aozora, whose shares plunged almost 16 percent.

Lehman’s Japanese unit also filed for bankruptcy in a Tokyo court. The division's total liabilities are estimated at $32.7 billion, making it the second-largest bankruptcy in Japanese history.

Japanese banks said Lehman’s figures greatly overstated their potential losses from Lehman’s collapse. They said they had limited their exposure by means of derivatives, collateral and selling parts of the loans to other investors.

To my friends in Tokyo, good luck with the derivative protection. Yikes. You do know that Lehman was a huge derivatives player, don't you?

-Robert Wenzel

Heavy Losses Overnight; BOJ Injects Funds

Asian stock markets sustained heavy losses overnight.

Japanese and South Korean exchanges  dropped 4.95% and 6.1% respectively. These exchanges were closed Monday for a holiday.In Tokyo, the Nikkei 225 Stock Average ended at 11609.72, a three-year low. Exporter stocks were hurt by the rising yen, while banking stocks were also hard-hit. Mizuho Financial Group went limit-down while Aozora Bank tumbled 16% on its relatively large exposure to Lehman, while Tokio Marine Holdings ended down 13%.

Meanwhile, the Bank of Japan injected ¥2.5 trillion into Japanese money markets Tuesday and said it would work to ensure stability in the market.

In Korea, the Kospi Composite ending down 6.1% at 1387.75, its lowest close since March 2007.

Hong Kong's Hang Seng tumbled 5.4% to 18300.61 amid weakness in China-related shares. The mainland's Shanghai Composite Index, which tracks both Class A and Class B shares, ended down 4.5% at 1986.64, despite Monday's surprise interest rate cut.

-EPJ Newsdesk

Japan Inflation Hits Decade High

Japanese inflation hit a new decade-high in July. While annual core inflation rose to 2.4%, it was unlikely to prompt the Bank of Japan to move interest rates from their low at 0.5%. As the BOJ eyeballs the possibility of a worldwide recession.

Japanese Wholesale Prices Soar

Japan's corporate goods prices rose at their fastest pace in more than 27 years, pushed up by surging oil and commodities prices, the Bank of Japan said today.

Japan's index for domestic corporate goods prices increased 7.1 percent in July from a year earlier to 112.0, growing at the fastest pace since an 8.1 percent gain in January 1981. Then, as now, high oil prices were driving inflation.

In June, prices rose at a 5.7 percent clip.

The corporate goods price index measures price developments of goods bought and sold by companies. The central bank uses 2005 as the base year for the index.

Japanese Firms Hold $56 Billion in Fannie/Freddie Debt Securities

Japan's three megabanks and major insurance companies combined had nearly 9 trillion yen ($56 billion) in debt securities issued by U.S. lending giants Fannie Mae and Freddie Mac as of March 31, according to business daily Nikkei.