Vitaliy Katsenelson: Japan is Past the Point of No Return

In this presentation Katsenelson tells us why Japan is past the point of no return. To put it simply, Japan is freaking doomed. Okay, I may be exaggerating just a little. But consider this:

  1. Japan’s GDP seems to have stopped growing.
  2. Japan’s budget deficits have continued to increase.
  3. Japan’s solution to zero growth is cut taxes, increase spending and borrow more money. It has done this repeatedly. If it doesn’t work once, maybe it will work if we do it again…and again???
  4. Japan can no longer keep funding its debt internally. Its population is getting old and starting to spend down their savings in retirement rather than saving more. (But I suppose it can print more Yen to buy debt.)

So what can Japan do?

It could raise taxes, but this will hurt the economy. And who wants to pay more taxes?
It could cut spending, but this will also slow the economy. And everyone wants to keep getting their piece of the government pie.
It could print Yen to continue spending and to buy JGBs to keep rates low. But a weaker yen harms their ability to import energy. With the shutdown of their nuclear plants they need to buy a lot more energy.

So what are the implications?

Japan is freaking doomed. Ok, maybe not but things are not going to be easy. It will probably accomplish things through a mix of these actions. It will raise taxes a little, cut some spending, print a little yen and probably let interest rates rise a little. Times will get tougher, but they will eventually pull through.

Japan – Past the Point of No Return – By Vitaliy Katsenelson