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Tokyo Warlords Hijack the Bank of JapanBy Gary Dorsch In an age when ruling parties of every political stripe manipulate data to promote their own self interests, there is also universal cynicism towards government statistics on inflation. It is natural for official inflation data to be wildly at odds with the realities of the marketplace, and regarded with utter disbelief. Nowhere on Earth is there more skepticism about inflation data than in Japan, especially after Tokyo's financial warlords rigged the core CPI last August, and shaved 0.4% off the official inflation stats with the stroke of a pen. That slick maneuver handcuffed the Bank of Japan from raising its overnight loan rate to 0.50% for the past four months. Tokyo was able to buy more time to keep the Nikkei-225 index afloat with a cheap yen policy, but Tokyo gold prices are now hovering at 78,500-yen /oz, just 4% shy of their 18-year highs set in May 2006, reflecting the massive amounts of monetary steroids injected by the BoJ into the Tokyo and global money markets for the past five years. Now, there is heightened speculation that the regime of PM Shinzo Abe has gone a step further and hijacked the Bank of Japan, robbing the central bank of its independence. "The government and the BOJ should share major policy objectives through mutual understanding, but not numerical targets," said Japan's top government spokesman, Chief Cabinet Secretary Yasuhisa Shiozaki on January 23rd.  The Bank of Japan was forced to kept its powder dry on January 18th, leaving its overnight loan rate pinned a just 0.25%, and sending the yen to a four-year low against the US dollar, a 9-year low against the Korean won, and a 14-year low against the British pound. Speculation is rife, that the BOJ buckled under heavy pressure from Tokyo's financial warlords, and a global flight from the Japanese yen could be in the cards in the first quarter of 2007. Bank of Japan Handcuffed by Ruling Politicians At a time when Iceland's central bank is pegging its overnight loan rate at 14.25% to defend its currency from speculative attack, it's ironic that the world's second largest economy cannot withstand a baby-step rate hike to 0.50 percent. "Speculation is speculation. As always, our decision is based on our careful assessment of the economy and prices. There is no room for factors other than economic and price conditions to wield clout over monetary policy," BoJ chief Toshiro Fukui explained. The Bank of Japan faces tough political opposition to a rate hike before an election for parliament's upper house in July. "With the US economy slowing and domestic price growth showing no sign of accelerating, the BoJ's next move should be to lower, not raise, its policy target rate," said Kozo Yamamoto, a senior vice minister of economy, trade and industry. "Nowhere can we see signs of inflation, and consumer prices could turn negative any time," he warned.  "There is no reason for there to be talk of a BOJ rate hike unless the core CPI grows consistently above 0.5%," Yamamoto added. Japan's core CPI was 0.2% higher last month, adjusted for the re-jig of the CPI components last August, which shaved 0.4% off the inflation data. "I believe Japan has yet to come out of deflation," said Shoichi Nakagawa, the ruling LDP policy chief. "I'm against the BOJ raising rates. Given the state of the Japanese economy, talking of a rate hike is absurd," he said. "It's up to the BOJ to decide whether to raise rates," said Japanese Economics Minister Hiroko Ota on Jan 14th. "We are truly at the crucial moment of finding out whether the Japanese economy could get out of deflation. And consumption has recently been somewhat weak. It is a critical period and the path toward escaping from deflation may reverse. I hope the BOJ will make a decision while taking responsibility for its action," Ota said.  Setting the distorted CPI data aside, Tokyo said Japanese wholesale prices were 2.5% higher in December from a year earlier. The Japanese corporate goods price index (CGPI), which tracks trends in global commodity markets, slowed for the third straight month after hitting a 25-year high of 3.6% in September, with crude oil and other raw material prices falling sharply, and lowering the costs of key imports. However, in light of the Japanese yen's devaluation against the US dollar, in which most international commodities are traded, the Dow Jones Commodity Index in Japanese yen terms, has stayed elevated in a range that's within easy striking distance of its 25-year high. A further sharp devaluation of the yen could lift commodities higher in Japan, and lead to higher factory inflation. The DJ Commodity index is 63% higher in yen terms from five-years ago, expanding at an annualized inflation rate of 12.6%, far above the Tokyo's wholesale price statistics. Where is the deflation that Tokyo's financial warlords fret about? Instead, it's entirely possible, that the BoJ's failure to tighten in monetary policy in a timely manner can revive the "Commodity Super Cycle" and a new wave of global inflation.  With crude oil falling 10% towards 6,400-yen per barrel in early January, one can might see a down-tick in Japan's official wholesale price stats towards 2.2%, buying more time for the BoJ to keep rates unchanged. Meanwhile, the Nikkei-225 has climbed to the 17,500 level, telegraphing a rebound in the Japanese economy from a slack 0.8% growth rate reported in Q'3, with sharply lower oil prices putting more yen in consumer's pockets and boosting company profits. With the Nikkei-225 above 17,000, the BoJ had the window of opportunity to raise rates, it was looking for. To read the rest of this article, please click on the hyperlink below, http://www.sirchartsalot.com/article.php?id=49 Gary Dorsch 321gold |
