Monday, April 9, 2012

Could Japan be Out Of Cans To Kick?

Japan's Trade and Current Account imbalances appear to be hitting some kind of terminal velocity and while neither JGBs nor CDS seem to reflect the ensuing chaotic recognition that perhaps the can that has been so faithfully kicked down the "Nishi-no-michi" or the West Road may have plunged over the lip of Mount Fuji (conjuring images of Mordor), FX markets recent and abrupt weakness brought on by yet more printing (a topic we discussed in great detail recently as the chosen heretical method du decade) may well be coming face to face with reality. We assume Azumi is faithfullywatching these market moves but we wonder at what point the quasi-intentional weakening of local currencies flares into a full-blown currency war - and instead of merely encouraging simpleton FX-carry strategies chasing momentum and leverage - quickly becomes the hyperinflationary super nova that many have been waiting for over the last decade. Dismal demographics aside, we wonder how long before Koo prescribes yet more of the same medicine for this constant state of deflation and at what point does inverted-Apple-looking charts for Trade and Current Account balances become simply too hot to handle...
The Japan trade balance has tipped into extreme freefall...

As has the Current Account balance...

or is it simply yet another false alert on the road to Mordor for Japanese Central Bankers?

In Summary Kids: Japan can and will buy its own debt, as long as there is a working computer available in Japan this process will continue, bare in mind Japan's debt is internally funded. While the US is financed from outside.
If Japan where to go, it will take a chunk of China with it, a total repatriation of funds out of Asia back to Japan. They nearly did that in 2011, but instead printed.
Scary part China/Japan both net importers of oil on a major scale.  Cue military tensions i.e Japans navy getting frisky.
They world is moving closer to major conflicts.
The global economy may not make it to the end of 2012.  The great bond market crash once hyper-inflation hits everywhere.  Starting with Europe.  China could blow out anytime, gauged on Aust terms of trade that is sinking (exports, AUD is heavy).  But oil going upward stagflation could rip into China.
So any oil spikes gift from Iran will tip the world into horror show stagflation or Israel drops some...
Rangy rallies till the Greek con job, 48hrs this market hits the March volatility.  
Going to be brutal starting Now!.

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