Japansanity... Or Why Japan's Yen Will Likely Only Get Stronger As Japan Prints More Money

| About: WisdomTree Japan (DXJ)

Japan's 0-64yr/old core population is collapsing...consumer credit is declining...government debt and Bank of Japan asset purchases have and will continue to go stratospheric. And through it all, Japan has the slowest M2 monetary growth of all major nations resulting in a continual strengthening of the Yen. The strength of the Yen continues to make Japanese exports more expensive and further slow exports making the "need" for more government debt and BoJ asset purchases more "urgent". But from here forward it only gets significantly worse and Japan is very likely near a point of terminal economic collapse...the end game is likely a politically driven act of desperation, a hyper-monetization action that will likely destroy the Yen and begin a global chain of collapse.

The Demographics, Economic Growth, and Debt

  • Japans 0-64yr/old "core" population peaked in 1989 and has been declining since. From '65-->'89, the "core" population rose by +16 million. Since '89, Japan's "core" has declined by 17 million.
  • While Japan's "core" population was growing, Japan's GDP grew rapidly almost entirely without increasing governmental debt.
  • Since Japan's core population began shrinking, GDP has grown
  • Since Japan's "core" began declining, Japanese debt to GDP has risen from 67% to north of 260%
  • The Government plans to remove debt from private and transfer it to government in a permanently monetizing (aka, buying the debt with money from nothing and then disposing of the asset).

  • 1950-->'89 "core" population rose by 30 million, an increase of almost 40%.
  • 1989-->'50 "core" population declines by almost 50 million, a decrease of almost 50%.


And on the flip side, the growth of the old. 65+yr/olds, by period. These people are not employed, credit averse, and mandated to sell their assets in retirement.

Bank of Japan has added $3 trillion or nearly an amount akin to the entire Japanese GDP.

The Japanese federal government debt is almost $9 trillion...it has grown by almost $6 trillion since '89, nearly tripling.

And all the while, Japan's Yen has continued to strengthen.

So government debt-to-GDP has tripled, Bank of Japan assets skyrocketed, and Japans currency is strengthening on attempted hyperinflation??? But to what end?

But of major currencies, Japan is seeing the slowest growth in M2 money supply. It is strengthening vis-s-vis all other major currencies. The collapsing desire to use credit (creation of money) and the death of money servicing interest amounts to the quantity of Yen growing the slowest. Strength!?!

And below, the growth of the monetary base since 2009.

WHY??? What??? No hyperinflation? Death by a strengthening currency? As interest rates went down (red line), consumer credit demand and overall demand for credit was supposed to be incented. As you can see from the columns below, not so much. Since Japan dropped rates to 0.5% in 1996, Japanese consumer credit has continued to decline and monetary velocity collapsing only minimally offset by government debt and monetization. But government debt and monetization have no leveraged multiplier...just a one and done that must be enlarged with every dosage simply to maintain the same effect. The only hope Japan has to weaken the Yen is the likewise collapse of the leverage multiplier across the rest of the world as government debt and central bank monetization replaces private parties.

Conclusion-
The certainty of Japan's population collapse means a declining number of buyers vs. a growing number of sellers will persist for a minimum of 3 to 5 decades...beyond that, simply unknowable. But no amount of credit can undo the massive overcapacity that will result from the unfolding 50% collapse in the core population. And since this is clear now, the BoJ monetization scheme is kicking into overdrive to conjure money from nothing to permanently remove assets from the "market" in an attempt to maintain asset values. The asset holding wealthy older population will be rewarded simply for being rich, the younger poor will be punished for being poor as asset values skyrocket, resulting in higher rents, higher food prices, and generally moving the assets beyond their capability to purchase them absent rising wages.

Japan's story is not an outlier but instead the template for what is to come across the world.

BTW - As the Yen strengthens, gold rises...something to keep in the back of your head?