Tuesday, Nov 07, 2006

Further tightening!

BBC: Bank of Japan hints at rate raise

The head of the Bank of Japan has hinted that interest rates may rise soon as inflation pressures increase.
"We must not take a long time to adjust policy interest rates," Bank of Japan governor Toshihiko Fukui said during a meeting with business leaders

Posted by tyrellcorporation @ 06:43 PM (366 views)
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12 Comments

1. harold said...

When the history books are written the BoJ's interest rate policy will be seen as utterly reckless, allowing the world to continue its cheap credit binge, creating multiple bubbles and ultimate economic collapse.

""There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved." Ludwig von Mises

Wednesday, November 8, 2006 09:55AM Report Comment
 

2. miniftse said...

Harold - Rubbish. The reckless credit binge has nothing to do with the bank of Japan. Why should you not be able to borrow money for next to nothing? For sure there should be checks in place to make sure your borrowing is affordable of one kind or another. Japan has to get itself out of a 20 year depression and 0% was undoubtably the way forward.

Wednesday, November 8, 2006 10:28AM Report Comment
 

3. Eddie_lomax said...

The Band Of Japans's 0% policy should be seen as a measure of its desperation and ultimately may have just prolonged the economic woes. Afterall all money has to "work", offering money for nothing means that at the end of the loan it will have produced zero profit, which is a loss after inflation has been added in, and that makes no business sense at all, the only times I can remember that being offered were in post war reconstruction.

Right now the BOJ's decisions absolutely have an effect on the BOE, if the BOE does try and keep rates low out of line with other world banks then money will move out of Sterling dropping its value and increasing inflation as goods (we're a nation of importers) soar in price.

If it does increase rates then they could cause a recession, either way its pain now or a severe crises in the future, and in my book even with taking the pain now we are in for a real depression when peak oil kick the economy in between 2008-2012.

Add to that the 20% of extra gas supply that comes from Norway will be wiped out by depletion in our own gas fields by 2008 (hence those fixed price deals only go that far) and I'm not seeing too many bright spots, its a shame really we are running debts up during the good times as a store of cash could have served us well.

Wednesday, November 8, 2006 10:57AM Report Comment
 

4. inbreda said...

Not sure I understand you Miniftse.

Surely the credit binge has everything to do with Japan, given the cash and carry trade?

And surely the reason they were in a 20 year depression was because their bubble economy burst. Making everyone elses economy fit to burst may well be the way out for them, but perhaps not so prudent for ourselves?

Wednesday, November 8, 2006 11:43AM Report Comment
 

5. harold said...

"Why should you not be able to borrow money for next to nothing?"

Err, hello?? Earth calling plant Zorg. Because investors will - naturally - borrow vast, and when I say vast I mean on an unprecedented scale, and speculatively put this 'free money' into assets, leading to... well, miniftse, if you need to ask, I ain't gonna tell you. I refer you to Herr von Mises.
The whole point of IRs is to increase investor risk to the point where they borrow only to invest prudently - not recklessly.

Wednesday, November 8, 2006 12:00PM Report Comment
 

6. harold said...

Sorry, "planet" not "plant".

Wednesday, November 8, 2006 12:03PM Report Comment
 

7. miniftse said...

But the carry trade isn't a consequence of Japans actions, it capitalism, freedom of capital and markets. If you're best friend had loaned you the money and you had gone and used it to outbid somebody in an auction for a push bike, the person who lost out in the auction wouldn't turn around and blame your friend. You can't not turn the fire on incase someone walks in the room and sticks their hand in it. Japans responsibility was to her people, dropping rates was necessary to get the country back on its feet.

They haven't gone out of their way to burst other peoples economies. That the responsibility of other economies.

You make an interesting point alluding to the 20 yr depression. The depression was so lengthy because they couldnt get people to spend money. There is a arguement to be made for spending your way out of a recession. Then when boom times resume, the reins are tightened, and that is what wew are seeing in this country at the moment. What shoud have happened in 2001-2003? Should the markets have been allowed to fall until we all were made redundant? Or was the government actually correct, to allow people to go and spend money, thus keeping people in jobs, the economy is now booming as a result, IR's are going up, people are tightening belts?

2001-2003 was different to previous bear markets because the debt burden had been moved to the individual from the state. Now in theroy this should make the process of spending our way out of a recession more efficient than previously.

But to suggest Japan should not help themselves with low IR is wrong. Everyone should aspire to have the lowest possible IR's, perhaps people just need a bit of discipline.

Wednesday, November 8, 2006 12:05PM Report Comment
 

8. Boarder said...

You cannot borrow your way out of a recession. Japan hoped to create INFLATION so that the asset yeilds could get back to normal without prices falling.

IMHO this was a stupid idea.

Wednesday, November 8, 2006 01:03PM Report Comment
 

9. kpjcomp said...

miniftse,

Your correct, BOJ should help themself's. The question is "Have they?".
The reason BOJ used such low rates was to help grow there economy, unfortunally most the money has'nt been used this way. And even now there economy is only just starting to pick up. And if there is a global economic collapse, with Japan being a major exporter I just wonder if they might just end up putting themself's back into another 20 yr depression.

Wednesday, November 8, 2006 01:05PM Report Comment
 

10. inbreda said...

Miniftse - your arguments seem bizarre to me.

If two people are bidding at auction for a bike worth ten pounds, and they bid it up to a million pounds just because someone is willing to fund them, does not make it a sensible thing to do.

Are you suggesting that Japan was sensible to fund the Wests shopping spree in China? And how exactly has that helped Japan?

There is a big difference between investment and speculation. And the latter would not be so rife if it weren't for japans rates. Whether they were right to do it is irrelevant - I agree they can do what they want, but your original comment "The reckless credit binge has nothing to do with the bank of Japan." is still wrong.

Wednesday, November 8, 2006 02:14PM Report Comment
 

11. miniftse said...

Yes, an edit function on these forums would be handy, i missed a 'per se' off the sentence you quote me on as being 'wrong' inbreda, actually i honestly didn't think it would be necessary.

It was in Japans interests to have low IR first and foremost, so people in Japan could borrow money, invest and spend in Japan, thus create jobs employment and growth.

If Japan had had higher interest rates, the same assest bubbles, if thats what they are, would have been funded perhaps by someone else lending money at 0.25%, now we don't know for sure that in the absence of Japan we could have got money at 0.25% (its actually a pretty good bet we could have), but we could certainly have got money from Switzerland at 1%.

It's not Japan - it's the control (or lack of) of international finacial markets and capital flow.

As for my bike analogy, sorry you didnt get it, Im not sure I can make a simpiler one, but you say its not sensible, not sensible for who? If a friend can afford to lend someone money, why is it not sensible for them to do it? But lets leave that one there.

Wednesday, November 8, 2006 02:41PM Report Comment
 

12. Nohpc said...

Harold the BoJ have done an excellent job. They have combatted deflation and now inflation is happening they are raising rates. What would you have them do? Raise rates to 5% and plunge their country into another economic depression with massive unemployment and misery all round. Interest rates will go as high as they need to in pretty much all countries from here on in. I don't doubt that for a second. They also need to be LOWERED LOWERED LOWERED in times of depression, unemployment economic collapse which is what Japan had. I know the bank of england's target is inflation but don't forget a lot more rides on interest rates than inflation and a lot of countries have started to whisper that inflation rates shouldn't be such a huge worry. Inflationn not including houses and energy in the UK is only 2.6%. Hardly the monster that you lot believe really.

Wednesday, November 8, 2006 09:31PM Report Comment
 

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