Re: Is Bernanke Behind The Rallies? Query to Barkley

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

Basil:

The reason is the Japanese trade surplus denominated in dollars.  With
the BoJ increasing the yen money supply, the new yen cannot find its way
into the yen economy because of a liquidity trap caused by zero interest
rate. With the BoJ pushing on a credit string, yen assets remain
relatively constant despite of excess yen in the banking system.  The
trade surplus in dollars makes the Japanese trade sector a mechanism for
turning yen input into dollar output, shrinking the yen economy while
expanding the dollar economy through a yen capital deficit into a dollar
capital surplus.

When the BoJ buys dollars, it keeps the yen exchange rate low and
increases the Jpanese trade surplus (in dollars), drainging the yen
money supply at a faster rate that BoJ injection, because the dollars
earned from trade is not fully reconverted back into yens.  The drainage
from yen into dollars is consitently at a ratio of over 10 to 1, with
the trade surplus running at $20 billion a month and the Boj buying $2
billion at peak intervention.

The fundamental flaw with the Japanese economy is not monetary or fiscal
policy errors but its basic structure of relying on export for growth in
the context of dollar hegemony.

Henry

bjm@xxxxxxxxx wrote:
> Henry
> I am having trouble with this?
>
> How can BoJ buying dollars increase the yen MS but not yen assets?
>
> And how can a Japanese trade surplus shrink the yen MS? The trade surplus
> must surely increase the yen MS as the BoJ buys dollars?
>
> Basil
>
> -----Original Message-----
> From: Henry C.K. Liu [mailto :hliu@xxxxxxxxxxxxxx]
> Sent: 20 June 2003 21:08
> To: pkt@xxxxxxxxxxxxxxxx
> Subject: Re: Is Bernanke Behind The Rallies? Query to Barkley
>
>
> 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
> > c/o James River Capital Corp
> > 5007 Chandler's Wharf, Suite 201/202
> > Christiansted, USVI  00820
> > 340-719-8813 office phone
> > 340-719-8804 Fax
> > Primary email contact:  mosler@xxxxxxxxxxxxxx
> >
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