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Brendan Brown on The BOJ's Bloated Balance Sheet · Bloomberg Intelligence

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  Speaker 1: Broadcasting live to New York Bloomberg eleventh, Brio to Washington,
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  Speaker 1: d C. Bloomberg to Boston Bloomberg twelve hundreds to San Francisco,
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  Speaker 1: Bloomberg nine to the Country's series Exam General one, and
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  Speaker 1: around the globe the Bloomberg Radio plus Appen Bloomberg got Gone.
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  Speaker 1: This is taking stock coming up on taking stock, will
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  Speaker 1: take stock off the Bank of Japan and it's well
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  Speaker 1: non action when it comes to stimulus and the economy.
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  Speaker 1: We've got details. We'll be speaking with the Brendan Brown.
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  Speaker 1: He is the chief economist and head of economic research
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  Speaker 1: at Mitsubishi u f J Securities. But right now, let's
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  Speaker 1: go to Charlie Pett and the Bloomberg News from Corey
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  Speaker 1: Bloomberg Business Flash, and I think if him Fox, let
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  Speaker 1: us begin with the Bank of Japan. It kept its
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  Speaker 1: key monetary tools unchanged and will mount a comprehensive review
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  Speaker 1: of its policy framework due to quote considerable uncertainty about
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  Speaker 1: the outlook for inflation, which has consistently underperformed the central
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  Speaker 1: banks forecast. James Sweeney is chief economist at Credit Suite Securities.
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  Speaker 1: I think a review makes sense. I mean, they're they're
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  Speaker 1: closing in on of the bond market owned by the
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  Speaker 1: BOJ and moving towards fifty and sixty on the on
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  Speaker 1: the current plans um hasn't worked so far, and market
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  Speaker 1: expectations are swinging around. I mean, this week, people really
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  Speaker 1: expected them to come in and and do helicopter money.
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  Speaker 1: I didn't think it seemed like that reasonable in expectation.
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  Speaker 1: Now it's been disappointed. The US Commerce Department says the
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  Speaker 1: economy expanded in the second quarter at a one two
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  Speaker 1: percent raised, lesser than projected, after an eight tense of
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  Speaker 1: one percent advance in the first three months of the
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  Speaker 1: year that was weaker than previously estimated. The medium forecast
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  Speaker 1: of economists surveyed by Bloomberg called for a two and
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  Speaker 1: a half percent second quarter increase, and consumer confidence is
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  Speaker 1: measured by the University of Michigan and slid in July
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  Speaker 1: from the prior month on tim reviews of the U
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  Speaker 1: S economy's prospects and lingering concerns among hiring common owners
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  Speaker 1: about global market conditions, x On Mobile and Chevron, missing
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  Speaker 1: profit and production estimatess, wildfires, write downs and weak refining margins.
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  Speaker 1: Battered oil explorers already reeling under a glut driven price collapse.
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  Speaker 1: X On Mobile down one point seven percent and Chevron
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  Speaker 1: is up by four tenths of one percent. Crude Oil
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  Speaker 1: West Texas Intermediate of one percent forty one of fifty
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  Speaker 1: three for a barrel of crude gold up eighteen forty
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  Speaker 1: announced the thirteen fifty SMP of five, a gain of
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  Speaker 1: two tenths of one percent to thirty two on Wall Street.
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  Speaker 1: Now we'll look at the other stories making news. Thank you,
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  Speaker 1: Charlie from the Bloomberg News Room. I'm Jill Schneider. Hillary
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  Speaker 1: Clinton and running mate Tin Kine are hitting the road today.
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  Speaker 1: The two were taking a bus trip through two battleground states,
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  Speaker 1: Pennsylvania and Ohio. Donald Trump is back on the road
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  Speaker 1: to appearing in Colorado Springs. Trump's run nate Mike Pants
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  Speaker 1: joined fellow bikers today in his home state of Indiana
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  Speaker 1: for the annual Motorcycle Ride with the group a bait
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  Speaker 1: GOP vice presidential nominee spoke to reporters, Let's make it
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  Speaker 1: of about a hundred thousand people, used the Flint River
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  Speaker 1: for tap water eighteen months ago to save money, but
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  Speaker 1: aging pipes. In April, two state regulators and a city
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  Speaker 1: employee were charged with official misconduct. Michael Barr Bloomberg Radio
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  Speaker 1: in Connecticut. Today, the public is getting a glimpse of
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  Speaker 1: the new Sandy Hook Elementary School built to replace the
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  Speaker 1: one where twenty first graders and six educators were murdered.
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  Speaker 1: The old facility was torn down in December two thousand
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  Speaker 1: the same property, but not in the old footprint. It's
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  Speaker 1: scheduled to open next month. Global News twenty four hours
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  Speaker 1: in more than one twenty countries. I'm Jill Schneider, and
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  Speaker 1: this is Bloomberg, Charlie, and we thank you, and again
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  Speaker 1: recapping a move higher for US equities SMP five hundred
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  Speaker 1: index trading very close to a record now up five
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  Speaker 1: a gain of two tenths of one percent. I'm Charlie Pellett.
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  Speaker 1: That's a Bloomberg business flash. You're listening to taking Stock
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  Speaker 1: with Pim Fox and Kathleen Hayes on Broomberg Radio. All right,
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  Speaker 1: Matt Miller here with Pim Fox. We're gonna bring in
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  Speaker 1: Brendan Brown, Chief Economists and head of Economic Research MITSUBI
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  Speaker 1: U f J Securities on what I think is one
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  Speaker 1: of the most interesting topics of the week of the month. Really,
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  Speaker 1: I think the Bank of Japan is more exciting right
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  Speaker 1: now than a Bank of England, Bank of Europe, Bank
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  Speaker 1: of England e C B OR or the Fed. Brendan
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  Speaker 1: to me, it's the idea, even though it's kind of
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  Speaker 1: been shot down of helicopter money, that keeps this story
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  Speaker 1: so fascinating. Why can't Carona do anything to get inflation going? Well,
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  Speaker 1: But they have been having a helicopter money for two years.
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  Speaker 1: We've had the budget deficit running at six of GDP
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  Speaker 1: and effectively of the Bank of Japan has been buying
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  Speaker 1: bonds essentially the next day after the issued from the banks.
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  Speaker 1: So helicopter money is here. But the reality is you
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  Speaker 1: can only get inflation up if there's about of strong growth.
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  Speaker 1: You need to have strong demand growth in the economy,
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  Speaker 1: and that they failed to have all together. And I
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  Speaker 1: would say the main two reasons for that have been,
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  Speaker 1: first of all, the extent of uncertainty created by all
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  Speaker 1: this monetary experimentation, and secondly, of course we've had the
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  Speaker 1: complete lack of economic reform, which was meant to be
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  Speaker 1: the third pillar of the RB economic But Brendon, how
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  Speaker 1: can it be impossible to get inflation going if you're
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  Speaker 1: just sitting there printing money. And the Bank of Japan
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  Speaker 1: now has a balance sheet that's the size of or
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  Speaker 1: surpassing the Feds any day now, Um, it's more than
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  Speaker 1: I think eight percent of their entire g d P.
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  Speaker 1: And if you're just printing money, willy nilly, who's going
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  Speaker 1: to continue to put faith in your fee currency. Well,
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  Speaker 1: that's a big question the Japanese themselves. When are they
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  Speaker 1: going to run out of the end? When are we
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  Speaker 1: going to get capital flight out of Japan. What we
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  Speaker 1: had in the first two or three years of urb
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  Speaker 1: economics is there was a huge amount of speculation against
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  Speaker 1: the end, essentially foreigners going short in the end borrowing yen.
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  Speaker 1: But the Japanese themselves and not go head over tails
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  Speaker 1: into buying foreign assets, so they continue to have this
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  Speaker 1: bias in favor of their domestic market. For the for
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  Speaker 1: the policy to um produce high inflation, you either have
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  Speaker 1: to have some sort of capital flight like in the
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  Speaker 1: ultimate you had in them republic um, or you have
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  Speaker 1: to have very strong domestic demand being stimulated by this.
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  Speaker 1: But but neither of that have happened. I think one
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  Speaker 1: or two of those will happen if they continued with
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  Speaker 1: this policy for the next five years. You know, if
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  Speaker 1: you if you look at the future for Japan, there
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  Speaker 1: will be a discontinuous shift at some point into high inflation.
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  Speaker 1: But it's not something that happens gradually. It happens in
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  Speaker 1: a discontinuous version. Is there a bond bubble definitely there's
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  Speaker 1: a bond bubble because you're looking at ten year yields
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  Speaker 1: in the j GB market, which slightly negative minus nor
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  Speaker 1: point two. Yet if you take any reasonable scenario approaches
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  Speaker 1: to what's going to be happening in Japan the next
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  Speaker 1: five to ten years, you would have to put a
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  Speaker 1: significant probability on this high inflation the yen collapse at
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  Speaker 1: some point. So anyone buying jgbs at these sort of
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  Speaker 1: yields um using some sort of fantasy, fantasy calculation, I
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  Speaker 1: would say nobody is buying bonds at these low yields
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  Speaker 1: and negative yields except for the Bank of Japan itself
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  Speaker 1: or foreigners doing an arbitrage in two dollars and getting
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  Speaker 1: a hundred basis points over treasuries. So the bubble is
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  Speaker 1: actually in the sense that you've got a lot of
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  Speaker 1: institutions and investors holding these bonds that huge profits compared
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  Speaker 1: to where they bought them, but they're not going out
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  Speaker 1: and taking the profits. At some point they will that's
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  Speaker 1: when the bubble will best, all right. So that's describing
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  Speaker 1: what's going on at the Bank of Japan with the
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  Speaker 1: Government of Japan. They are proposing a twenty three cent
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  Speaker 1: an hour increase in the minimum wage. They also want
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  Speaker 1: to increase the benefit to low income individuals for about
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  Speaker 1: ninety five dollars a year, and they want to lower
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  Speaker 1: the unemployment insurance pre meum over a number of years.
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  Speaker 1: Why do all of these very small things if they're
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  Speaker 1: not going to have any effect on the larger picture. Well,
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  Speaker 1: as you say, in in and arithmetic terms, the budget
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  Speaker 1: proposals which have been leaked out of the RB administration
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  Speaker 1: amount net net net about nor point six or nor
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  Speaker 1: point seven percent of GDP, So that's not going to
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  Speaker 1: be a game changer. Although I would say that when
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  Speaker 1: you take account of all the subsidized lending that explodes
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  Speaker 1: that package by about three times, I would very much
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  Speaker 1: expect the credit rating agencies to be downgrading japan debt
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  Speaker 1: and that may be one of the triggers eventually two
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  Speaker 1: a week a year and bursting the bond bubble. But
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  Speaker 1: I but I think the package, once seen so far
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  Speaker 1: as one knows about it, it's very much carrying out
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  Speaker 1: the pledges that were made in the Upper House elections
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  Speaker 1: two weeks ago and rewarding basically the core groups for
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  Speaker 1: support the LDP governments, such as the construc auction companies,
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  Speaker 1: so you're seeing a package which has weighted towards those
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  Speaker 1: political interests. Brendan Corona Themes seems to want to have
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  Speaker 1: a rethink here. What do you think he's going to
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  Speaker 1: come up with? Is it possible that we'll get in
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  Speaker 1: about face. I don't think Kuroda himself doing an about faith.
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  Speaker 1: Central bankers don't in general, and I don't think Coroda
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  Speaker 1: is an exception um walk back on their policies in
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  Speaker 1: that way. If it's going to be any change to
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  Speaker 1: the monetary targets or monetary policy in Japan, it would
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  Speaker 1: have to come from RB himself deciding to replace the
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  Speaker 1: leadership in the Bank of Japan and explaining that the
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  Speaker 1: policy has failed. But I don't see any signs of that.
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  Speaker 1: Thank you very much for joining us Brendan Brown as
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  Speaker 1: chief economist and head of economic research at Mitsubishi u
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  Speaker 1: f J Securities, giving us his perspective on the Bank
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  Speaker 1: of Japan and their efforts to stimulate the economy. This
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