Re: Is Bernanke Behind The Rallies? Query to Barkley

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Not guite, Warren.  When the BoJ buys dollars, and it has been doing so
rather massively in the name of smoothing the rise of the yen in recent
months, it increases the yen money supply, but not the amount of yen
assets.  This normally will "import" inflation to Japan from the US if
not for the Japanese trade surplus in dollars.  Japanese trade surplus
runs about $20 billion a month now and BoJ spends about $2 to 4 billion
a month to shore up the dollar (no one knows exactly how much, but
surely less than $20 billion a month). The trade surplus turns yen input
into dollar output thus shrinking the yen money supply and contracting
the yen economy.  The Japanese trade surplus in dollars,together with
the US capital account surplus in dollars, cause deflation in Japan
which in turn supports the Japanese trade surplus, which in turn
supports the US capital account surplus, thus causing spiralling
Japanese domestic deflation.

Henry

Warren Mosler wrote:
> --- "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx> wrote:
>
> > My point is that lowering the exchange rate of the
> > yen will only
> > contribute to deflation because it increases the
> > dollar denominated
> > trade surplus which Japan must reinvest in dollar
> > assets, thus shrinking
> > the yen economy.
>
>
> The way I see it, when the boj buys $US, for example,
> it increases net yen denomimated financial assets of
> the non govt sector, just like any other form of net
> govt. spending.  It also increases its net savings of
> $US, so the process
> in fact could be said to be importing US 'inflation'
> or exporting Japan's 'deflation?'
>
> warren
>
>
> =====
> Warren Mosler, www.mosler.org
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