Bank of Japan to Pursue Qualitative and Quantitative Easing - Double Their Monetary Base

Along with most monetary enthusiasts I was anticipating a significant announcement from the BOJ two day policy meeting this week, and this seems to be it.  They are going with an aggressive set of both qualitative and quantitative easing with the express intention of weakening the Yen and creating monetary inflation.

Japan will be firing up their industrial policy using the weaker yen to create more foreign demand for their goods to make up for the slack domestic demand based on their declining demographics.

As you may recall, Japan has been unable to stimulate their economy despite spending rather significant sums on infrastructure and other stimulus projects.  The lack of reform in their fairly well entrenched and pervasive crony capitalist keiretsu structure, which one might say is about a half step removed from outright feudalism, has resisted all their best attempts at livening things up.

And the declining demographics of an island nation that discourages immigration is certainly no help either.  But I would not discount the tax that corruption and inefficiency plays in dampening GDP growth, post bubble.  Corruption creates inefficiency, fraud, and malinvestment, always and everywhere.  Just ask China.

This major policy shift to inflation may help to explain the relentless hammering of the precious metals, which are the only rival currencies that cannot be doubled by the stroke of a bureaucrat's keyboard.

Look for more competitive devaluations from other countries, both explicit and implicit.  This is the more conventional aspect of the currency war, and is a perennial favorite of the political class.

The more secular aspect is the seismic shift of the US dollar reserve currency regime which has been in place since the end of WW II.  That bit of monetary exotica will make this currency war one to remember.

DailyFX
Yen Weakens as BoJ Introduces Qualitative and Quantitative Easing
By Christopher Almeida
04 April 2013 05:10 GMT

THE TAKEAWAY: The Yen weakened as the Bank of Japan introduced Qualitative and Quantitative Monetary Easing including an increase of JGB purchases.

At the end of the two day meeting, the Bank of Japan announced that they were introducing a ‘Quantitative and Qualitative Monetary Easing’ program with an aim to achieve the price stability target of 2 per cent in two years. The Bank announced that it will now use ‘monetary base control’ in pursuing quantitative monetary easing which involves carrying out market operations that will expand the monetary base by 60-70 trillion Yen per year.

The Bank will also increase Japanese Government Bond purchases as well as increasing the average remaining maturity of about 3 years to 7 years. As a result of these, the Japanese Central Bank has decided to terminate the Asset Purchase Program with the outstanding purchases being absorbed into the JGB program. 

In their statement, the policy makers stated that Japan’s economy was showing signs of a pickup with overseas economies seen to be growing at moderate paces. Despite the year on year rate of change of the CPI for Japan being negative recently, the Bank sees that indicators are suggesting a rise in inflation expectations...

Rest of the article with Yen Chart here.
 

Financial Times
Bank of Japan to double monetary base
By Ben McLannahan in Japan
April 4, 2013 6:05 am

Haruhiko Kuroda has announced his arrival as governor of the Bank of Japan by introducing a “new phase of monetary easing”, doubling Japan’s monetary base through aggressive purchases of long-term government bonds and risk assets.

Read the entire article here.

Currency Wars: Restricting Gold and Silver Sales in France

A few people have asked me about the recent story concerning France banning cash sales of gold and silver. The story originated here but was picked up by quite a few other sites last week. I was waiting to get some additional information before I posted it as well.

This is different from the reports of limits specifically on gold and silver sales in Austria.

"According to the bank representatives and manager we spoke with, Austrian banks have now been ordered to restrict the sale of gold and silver bullion purchases and are limiting personal acquisitions of precious metals to 15,000€ (approximately $20,700 USD) at a time, or 11 ounces of gold at today’s prices."

Here is a link to the French law that has caused this latest discussion.

Tightening the Noose: France Bans Cash Sales of Gold/Silver over $600
By Mac Slavo
September 23rd, 2011

"...It looks like this trend of restricting the peoples’ ability to acquire assets of real monetary value is expanding. If a recent report from France is accurate, and based on the French governments official web site it looks like it is, then as of September 1, 2011, anyone attempting to sell or purchase ferrous or non-ferrous metals, which includes gold and silver, will be required to pay for their purchase via a credit card or bank wire transfer if it exceeds 450€ (~ $600 USD)...

...According to independent reports the law was passed to curb the illegal sale of stolen metals like copper, steel, etc. Given the rampant rise in thefts of these metals from telephone poles, construction sites and businesses here in the United States, we can certainly see this as a reasonable assessment for why the French passed this law.

However, the fact that no exception was made for gold and silver simply cannot be ignored. The new law effectively makes it illegal to purchase even a single Troy ounce of gold or around 18 ounces of silver in cash."

So I asked an aficionado of the metals in France what the straight story is on this, and here is the reply:

This law is basically saying that retail “metal” transaction OF ANY AMOUNT cannot be paid in cash. It further says that there is a limit to how much metals can be transacted via retail up to a limit set by decree (not yet specified).

Any retail transaction above 450EUR must be paid via bank transfer (ACH). This is encompassing all goods and services, not just metals.

I called a gold coin & bar dealer whom I know in Paris.

They told me that their legal counsel is awaiting for the final interpretation of this new law sometimes this week.

In the mean time, they still sell gold to retail customers and accept cash payments without requiring an ID for transactions up to 3000 EUR per day per person.

She warned me that it may change any time.

And so there you have it. If you wish to buy gold and silver unobtrusively in France you may wish to do so now. Otherwise be prepared to start using bank transfers including credit cards for all transactions in any metal, and all large transactions for anything it seems.

It is hard to accurately judge official motives in this sort of action. It *could be* to restrict activity in stolen copper as some have said.  It may very well limit demand for the 500EUR note.  lol.

But it could also be to limit the incentive for a run on the banks by making cash less useful to hold. It also helps to channel more transactions through the fee-taking banks, which is a tax on the real economy.

And it might very well be designed to restrict a run on the metals if the western currencies are devalued. I have heard elsewhere that this is tied to the revaluation of gold relative to other currencies which will be included in the new composition of the SDR. I have also heard that one or two countries will include gold in their official reserves and tie it to their currency at some official rate that is substantially higher than the current spot prices, setting up an interesting change in market structure.

In other words, this law has the flavor of currency controls to prevent a bank run in preparation for a devaluation. And given the current nature of their trade deficit, I think it is a bit naive to assume that the US will stand idly by and not participate in this coordinated devaluation as well.  Even that stalwart of hard assets Switzerland had to give way and weaken its currency to preserve its exports.

Restricting and manipulating short term prices can only go so far. At some point it appears they must also try to regulate and restrict access by private individuals if there is a market dislocation and a change in status quo. I fully expect that all exchange defaults will be force settled in cash at an official rate.  And the retail bullion inventory would likely disappear from the shelves overnight except at the most outrageous prices.

With Asia moving to more widely encourage private ownership of gold and silver, the international dynamics may become most interesting.

This reminds me somewhat of restrictions and laws regarding foreign currency in Moscow and other eastern European countries in the 1990's. There was a state dictated exchange rate, and all currency was to be done in an official exchange office.

The practical effect was that no one wanted roubles except grudgingly, and most non-official transactions were made at street rates in hard currencies like Swiss francs, Deutsche marks, or Dollars. And there were official shortages of many staples as the markets moved 'underground.'

My, how times have changed.  But they will never learn.