Where We Go After Down

US Dollar versus JPY over the last eleven hours

After a Monday of global stock market instability and collapse the Abe government will be facing questions about what it can do to protect Japan’s economy from damage. The Cabinet will have its regularly scheduled Tuesday meeting. Afterward media organizations will ask Chief Cabinet Minister Suga Yoshihide what if anything the Abe government intends to do to restore confidence in Japanese markets. Prime Minister Abe likely faces as similar fate in the Diet, the opposition homing in on the unfair but entirely reasonable question of what he as prime minister will order his subordinates to do.

The answer Suga and Abe will not own up to is that there is virtually nothing the Abe government can do except watch the screens with dread. This government is tapped out when it comes to either deploying cash or inspiring confidence. Increased fiscal stimulus was already in the cards for this autumn; it is now a virtual certainty. Such fiscal stimulus is designed, however, to cope with the heretofore obstinate refusal of the Japanese economy to respond to the ministrations of the Bank of Japan, not to quell current market turmoil.

Liberal Democratic Party hacks will be tempted to argue that the public need not be worried, that equities markets are wrong and Japan's future is bright because of the yet-to-be realized growth effects of the Third Abenomics or robotics or some other such rigmarole. I am waiting for some peppy puppy (please, please, please let it be Liberal Democratic Party Policy Research Council Chair Inada Tomomi) to say, "Just look at how much the yen strengthened yesterday! It is a sign that global investors appreciate the opportunities and stabilities created by the Abe program!" That the effect any of the major proposals of the Third Arrow would be deflationary, exacerbating the market's fears about growth, will not trouble any part of the soft squishy heads of the Abe True Believers, of course.

Had we a ruthless, determined opposition in this blessed land, television shows this morning would feature street smart and mean-looking (yes, I am thinking of Renho) MPs complaining that the Japanese government would have the capacity to deploy assets to calm markets, making Japan the global leader Abe Shinzo always blabs about, a except of course that Team Abe robbed the national piggy bank to inflate the profits of its zaikai and construction industry friends.

That Japan lacks a serious opposition means of course the country will not be tying itself into knots, each side blaming the other. Of course it also means that the country will generate zero ideas on what it is that the government must do, as members of the parties in power will merely keep repeating the idiot mantra, "Markets go up. Markets go down. The important thing is to not panic. Wait for the government's current policies to bear fruit."

Image courtesy: Yahoo! Finance Japan

What The Third Arrow Always Needed Was A Soundtrack

Sadly, I can so see Prime Minister Abe Shinzo and First Bro Seko Hiroshige holed up in the PM's office at the Kantei, air guitaring to the arpeggios and grimacing while playing imaginary synths.

Rock on, courtesy the Prime Minister's Residence.

Yes voters of Japan, someone, perhaps a whole gaggle of individuals, got paid to put together this video celebration of the Prime Minister's growth strategy.

Your tax yen at work.

I have to admit, I am torn. I cannot tell which scene I like better: robosuit-assisted Abe lifting up an unidentified object and putting it back down again to no purpose...or the sudden almost dead stillness of a uniformed Abe driving the tea leaf harvester.

Not Heeding The Doctor's Orders

At The Economist Japan Summit 2014 conference held on the eve of President Barack Obama's visit to Japan, Columbia University Professor Gerald Curtis was assigned the delicate task of providing instant analysis of Prime Minister Abe Shinzo's keynote address (Link). Professor Curtis said much, but his main message to the PM and his team was that their movement faces a moment of truth. For the Abenomics train to keep rolling, the PM had to chose four or five big reforms right now out of the Abe and Co. potpourri of ideas, commit to this handful of reforms in a public way and then together with his Cabinet and his ruling coalition complete all work on these selected reforms by November.

"Yes," I remember saying to myself at the time, "But Abe-san won't do that, will he? And since he won't, it is probably best not to ask him to. We saw how well telling him not to go to Yasukuni went, didn't we?"

In the news today, evidence that Team Abe Shinzo really does not share Dr. Curtis's sense of proportion and moderation. Rather than a handful of big items to tackle with dispatch, the Third Arrow reforms suggestion list is a grab bag assortment of TWO HUNDRED AND THIRTY (yep, 2-3-0) items. (Link - J)

That is a lot stuff to just read through, much less enact.

Monday, June 16 is going to be a very, very interesting day.

Abe Shinzo's Virtual Referendum

Today is supposed to be crunch day: the day when the New Komeito decides whether to accept or reject the Liberal Democratic Party's sudden cram down of an expansion of Japan's definition of constitutional self-defense to include collective self-defense.

The choice is not a happy or an easy one.

The New Komeito's mothership, the Soka Gakkai lay religious (I know that that is an oxymoron. So does the SG. Hence its paranoia) organization has already expressed its opposition to the LDP's plan to reverse through a simple Cabinet Decision (kakugi kettei) the Japanese government's heretofore decades-old official position that the exercise of the right of collective self defense is unconstitutional. For the SG, the only proper path for such a reversal of a previous unconstitutional ruling is a revision or amendment of the Constitution (Link - J).

For the New Komeito, surrendering to LDP pressure on a Cabinet Decision would set the party formally at odds with the SG leadership. This would, of course, do wonders for the party's longtime claims to be independent of the SG. At the same time it would be extremely confusing for the SG flock -- who vote en masse for the New Komeito because is it the political face of the SG.

Why would the LDP be putting its ruling coalition partner through this ordeal? I have speculated that the Abe administration's appreciation of its inability to halt hemorrhaging of public support not only for "constitutional revision via Cabinet Decision" but collective self-defense itself has triggered a panic response. (Link)

What is making the rounds of Nagata-cho now (and for this insight I am indebted to Michael Penn of Shingetsu News) is the idea of a snap dissolution of the House of Representatives after the end of the current Diet ordinary session.

On the face of it, a House of Representatives election now poses unnecessary risks for the LDP and Abe Shinzo. The party already has huge majority in the House of Representatives reflecting the frustration and disgust the voters felt for the political process in December 2012. There is no guarantee that the voters, when given a chance at passing judgment on the Abe Administration, will not opt for independents in the district seat elections and opposition parties in the proportional seat elections. Yes, the polls numbers for the LDP and for the Abe Cabinet are fantastic and the opposition parties abysmal -- but as the House of Councillors election in 2007 showed, the public has the power to clip Abe Shinzo's pretensions of political mastery.

A snap election for the House of Representatives does, of course, nothing to change the seating arrangements in the House of Councillors. The break ups of the Your Party, the disgrace of Watanabe Yoshimi and the division of the Japan Restoration Party into two have only complicated, not eliminated, the possibility of a crafting of a Hawk-Hawk-Hawk (add as many Hawks here as you like) coalition in the House to replace the existing Hawk-Dove LDP-New Komeito coalition.

The argument for the prime minister dissolving the House of Representatives is compelling. Given the thuggishness of reversing a government constitutionality ruling by fiat, the Abe Cabinet will be searching for a means of justifying its actions. A snap election, with the certainty of a strong, possibly entirely extirpating, victory of the LDP over its scattered, fissioning and puny opponents, would demonstrate, according to Abe, the LDP and the Yomiuri media empire, that the public strongly supports the Abe Cabinet's behavior.

Of course, an LDP victory would not be a virtual referendum on the party's policies. It would be a reflection of the current pitiful state of the opposition parties. In a true referendum, such as the one that a revision of the Constitution would require, the voters would get the chance to choose between "Yes" and "No." In the whispered-about snap dissolution and general election, the choice would be between "Yes" and "Nothing."

The further arguments for a snap election are an increase in the LDP's freedom of action and a coverup of the Abe Cabinet's continued fecklessness as regards structural reform.

The LDP's rank-and-file, the young and militant mass of Abe Shinzo acolytes that Machimura Nobutaka finds distressing (Link) are not wrong in wondering why, in the face of polls showing support for the LDP in the 40% range, the LDP has not ditched its coalition with the cautious New Komeito. The relationship does seem an artifact of another time -- when the long term trend in voter behavior was away from the LDP, despite all the financial rewards being dangled, toward alternatives (the 1993 opposition coalition, the New Frontier Party, the Democratic Party of Japan, the Nippon Isshin no Kai, et cetera). for the wild things in the party the obvious choise is to force the New Komeito to chose one way or the other on a Cabinet Decision -- and if they balk, dump the coalition and go to the public for its response.

After the victory, the party could roll up its sleeves and set to work on really remaking Japan, free of the New Komeito's annoying obstructionism.

As for structural reform, on Monday the 16th the government is supposed to release a "third time's the charm" rerevised Third Arrow of Abenomics. All signs are that the government will, despite being given two chances to rethink and revamp its presentation, fail to include the details and synergies global investors and the world media crave. (Link)

What better time then, to turn around to the rest of the world with a defiant, "What? You don't like it? Well, we asked the Japanese voters and they love it!"

So what is the likelihood on this Friday morning of Abe and Friends going through with a virtual referendum after the end of the regular Diet session? Incredibly, I am thinking they are 50-50.


Later - Jiji is reporting that the New Komeito is looking for a duplicitous out smudging the line in between individual and collective self-defense (Link). Wish them luck -- given the time frame on coming to a decision on specific scenarios, New Komeito negotiators will have no opportutinity to coordinate their positions with the Soka Gakkai directorate.

What Could Really Kill Abenomics

My admiration for Yale University professor Hamada Ko'ichi, the acknowledged intellectual father of the first two arrows of Abenomics (Link), has been, for the most part, non-existent.

Until today. (Link)

And yes, my newfound appreciation is based in his seeing the data the same way I do, as unsupportive of a declaration of victory.

By contrast, thanks to reporting by the same financial news service, my faith in the economic reasoning at major financial institutions has plummeted. In a survey of 32 economists at financial giants like JPMorgan Chase & Co and Nomura Securities, 22 thought that Japanese stock markets would suffer a significant fall if Prime Minister Abe Shinzo decides next month to delay or cancel the April 2014 rise in the consumption tax from 5% to 8%. (Link)

Because...

1) It would diminish the capacity of the Bank of Japan to buy government bonds (What???)

2) Because it would reduce the credibility of the reforms in Abenomics growth package (What???)

Unless the 22 economists with a negative view can offer a mechanism that would cause the relative value of owning shares to fall vis-a-vis other investment opportunities -- which would have to be opportunities outside of Japan as the value of the main domestic alternative, Japan government bonds, will likely be crushed by any hint the government will not even attempt to keep its promises on finding a way of repaying the debt -- then those economists should not answer the phone the next time Bloomberg calls.

As for the so-called Abenomics growth strategy (which is not a strategy since strategy involves choice and sacrifice), its vacuity, not a failure to raise taxes, seems the most imminent and likely cause of a crushing of investor sentiment. In response to a massive letdown after the official Third Arrow announcement in June (Link), the government and its advisors seemingly have chosen the paths of least, or possibly no, effort:

a) Canvassing the public for ideas as to what policy changes should be in the growth strategy (Link) -- as if a grab bag of a hundred little ideas, all of which would require regulatory or legal changes, could even be implemented, much less coalesce into coherent programs, and

b) Doubling down on the announced plans, assigning to the Abe government brain trust the task of making the June proposals seem more than what they are (Link - J) -- the infamous recommendation of the "Plan B is to make Plan A work" school of management.

Oh, fabulous...

Me Talking About India-Japan Nuclear Power Cooperation

Via Voice of America. (Link)

My family name, however, is pronounced "Chew-check." You can find us primarily in Slovenia and Croatia.