Japan’s Yield Curve Control; Will It Ever Work?
July 10, 2017
Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.
The YEN is weak and the USD is trading through 114, which we deem to be technically and fundamentally important as the G20 meeting has ended without any major policy statements having evolved and as the G7 nations are left, effectively, to pursue their own policies. Of far greater importance in the market’s collective mind than was the US Employment Situation Report released on Friday and/or the outcome of the G20 meeting in Hamburg was the statement on Friday by the Bank of Japan that it had undertaken efforts to make certain that interest rates there did not rise and that it was fully prepared to at the minimum continue with its aggressive experiment with QE.
We wrote at length on Friday of this announcement and of the Bank’s activity in the markets on Friday in Tokyo. Now that the G20 meeting is out of the way and now too that the always “interesting” US Employment Situation Report is history, the markets are properly focusing their attention upon the BOJ’s policies and they are expansionary.
In case anyone missed the BOJ’s intention, its action on Friday was a clear indication that it is fully committed to its “yield curve control” policy, which is a euphemism for monetary expansion. Japan has no choice but to continue in this fashion in light of the recent devastating demographic data which showed that for its population has fallen yet again and that for the 36th year in a row… 36 years!… the population of children in Japan has fallen. For 25 years, Japan’s fertility rate… the number of children born to the nation’s women… has fallen and is now down to 1.4 with 2.1 the number needed to keep a population growing.
As for the G20 meeting, the news media’s global headlines are that the US has fared badly in that the Trump Administration’s positions on global climate change and upon international trade have forced the US to the sidelines. We’ll not argue with that assessment for that is indeed what has happened. However, if the US is a minority of one regarding climate change and actions to be taken to limit that change then we strongly agreed with Washington, for although we are believers in climate change, we are not believers that there is much if anything that can be done… or should be done… to fight that change. Indeed, our great fear is that proposals to fight climate change are anti-free trade, anti-business and archly left of-centre and thus truly detrimental to economic growth.
We shall, however, take issue with Mr. Trump’s and Mr. Bannon’s anti-free trade positions and/or anti-global trade initiatives, for we see in those positions policies far too reminiscent of Smoot-Hawley and other ill advised anti-trade policies of the past. America First is one thing: America Alone is entirely another.