There is a popular American military term called a “last stand”, which is meant to describe a situation where a combat force attempts to hold a defensive position in the face of overwhelming odds. The defensive force usually sustains very heavy casualties or is completely destroyed, as happened at Custer’s Last Stand. General Custer, misreading his enemy’s size and ability, fought his final and fatal battle of Little Bighorn; leading to complete annihilation of both himself and his troops.
The Japanese government is now partaking in a truly incredulous measure to expand its QE program in a desperate attempt to de-value its currency and re-inflate asset bubbles around the world. In other words, Japan is constructing its own version of a “last stand”.
In a final attempt to grow the economy and increase inflation, Japan announced a plan to escalate its QE pace to $700 billion per year. In addition to this, Japan’s state pension fund (the GPIF), intends to dump massive amounts of Japanese government bonds (JCB’s) and to double its investment in domestic and international stocks. All this in a foolish attempt to increase inflation, which Japan mistakenly believes will spur on economic growth. But these failed policies have now caused Japan to enter into an official recession once again, as GDP fell 1.6% in Q3 after falling 7.1% in the previous quarter.
Japan is now guaranteed to be successful in the total destruction of its currency, the complete destruction of its economy and the collapse of the markets it is attempting to manipulate around the world. To fully understand its misguided reasoning, we have to explore how Japan got here in the first place.
Coming out of WW II, Japan enjoyed a three-decade period referred to as its “Economic Miracle”. This “miracle” was instigated by a booming post-war export economy helped by prudent fiscal policies, which was meant to encourage household savings. Japan’s standard of living soared among the highest in the world. Japan sailed into the 1980’s on the wave of robust economic growth. However, if we have learned one thing after all these years, it’s Government’s insatiable need to meddle with the free market, even when they don’t need to. Accordingly, the 1985 Plaza Accord was sought to weaken the U.S. dollar and German Deutsche Mark against the yen. The Bank of Japan, in an attempt to offset the rising yen, drastically reduced interest rates. The BOJ’s loose monetary policy in the mid-to-late 1980s led to aggressive speculation in domestic stocks and real estate, pushing the prices of these assets to astonishing levels. From 1985 to 1989, Japan’s Nikkei stock index tripled to 39,000 and accounted for more than one third of the world’s stock market capitalization.
