When will Japan be all-in?

Since the Christmas of 1989 Japan struggles with serious problems. The public debt reached a world record level; the stimuli are in a manner of pull and ease and they don’t have a serious effect. The interest rate is 0 already for 20 years, even like this, there is no accelerating increase, there is no trace of inflation, the society is senescent, and it is not seen when will Japan come out from all these problems (although one of my college said that we would really like to stagnate as the Japanese). The Abenomics was suspicious from the beginning, and in total it hasn’t reached any impact. Since Japan is fighting for the longest time with those kind of problems, which partly concerns the USA and Europe as well; probably they should determine themselves to make a serious step, and maybe there is a sign for this. They are the first who entered in this crisis and probably they will be the first ones who will make a drastic step.

Ben “Helicopter” Bernanke and Paul “Stimulus” Krugman both are around the Japanese minister and it is possible that their conversations will have some effect. Of course the solution is obvious, but no one had the guts to do it. Since the Bank of Japan (BoJ) is buying up all the public debt, and if they continue like this, BoJ will be the majority owner of this debt, so it would be the time to declare that the government bonds purchased by the Bank won’t ever be paid back (for example the bonds can be modified into zero-bonds with no maturity date). In the future, from the money made by the National Bank, Japan can generate such a budget deficit which is needed for the economy to start a dynamic increase and to get rid of deflation. They could settle an inflation level of 4-5% and until than they could buy the budget deficit.

We can say that BoJ is buying the budget deficit, now he owns one third of the deficit, and this is increasing:


However it would be a major change if they would declare that the budget deficit won’t ever be reimbursed and the Japanese Government doesn’t have to take care of the deficit, and he can spend as much as he wants.

I think that there is a good chance that the period of helicopter money will start in the next years in Japan. If this will happen than it will cause major changes in investors’ thinking not only in Japan, but in the whole world. If this will happen than it will be a real Big Bang, and from that moment on everyone will look differently at the whole world. Probably, when this will happen, it will lead to the collapse of the price of long-term bonds, and to the boom of stocks.

Original date of Hungarian publication: July 27, 2016