234 Trillion Yen. That’s A Real Number, Apparently.

“We are determined to protect the Japanese economy”, Taro Aso said Wednesday, as Japan moved to pass another extra budget. “We are facing a crisis that goes beyond the scale of the Lehman shock”.

The latest pandemic relief package from Japan totals 117 trillion yen. That’s a familiar number. It comes just a month after an 8.9 trillion yen addition to the first extra budget brought total COVID-19 relief spending to 117 trillion yen by April 20.

So, the new package amounts to a doubling of that, for a total of 234 trillion yen in spending to help the world’s third-largest economy overcome a deep recession.

You’re reminded that Q1’s 3.4% output decline (which was actually a better-than-expected print) came on the heels of a rough Q4, marred by the tax hike and a typhoon.

With a Q1 contraction now in the books and Q2 set to be horrific for obvious reasons, Japan is set for three consecutive quarters in contraction.

As far as the breakdown of the latest stimulus package goes, 33 trillion of the 117 trillion will go towards direct spending.

Specifically, Japan will spend nearly 12 trillion yen doling out loans to small- and mid-sized businesses; three trillion for doctors, nurses, medical supplies, and vaccine development; two trillion for rent subsidies; nearly 5 trillion for payouts to low-income single parents, artists, farmers and schools; and 10 trillion for an emergency reserve.

The balance (i.e., the difference between the headline figure and the direct spending) will go to state-backed banks for relief to virus-hit firms.

The second extra budget will be funded in part by some 60 trillion yen in new debt issuance. For this fiscal year, Japan now plans to borrow 212 trillion yen. The figure shows how this has evolved since December.

Bloomberg Economics preemptively calls the expected surge in the country’s debt-to-GDP ratio (already the highest in the developed world) “mind-spinning”.

An article out Wednesday reminds you that “the government’s extra spending comes amid reassurances from the Bank of Japan that it won’t allow bond yields to rise”.

At this point, I think everyone gets the message, as it’s more explicit than it’s ever been thanks to the COVID crisis.

When central banks are guaranteeing they will buy as many bonds as it takes to ensure borrowing costs do not rise for the sovereign at a time when debt issuance is ballooning into the many trillions, we are squarely in government financing territory.

More to the point: You can stop it with the “we won’t try MMT” narrative. That battle is lost. We are there. And it’s just a matter of time before central banks cut out the superfluous middleman and buy directly from the government.

Eventually, governments will likely consider simply canceling the debt held by their own central banks, but that’s a story for another time.

Last month, the BOJ effectively removed the cap on bond buying. Although yield curve control has resulted in an effective taper in the pace of JGB buying by the central bank, the ownership breakdown obviously shows Kuroda has cornered the market.

Any questions?


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8 thoughts on “234 Trillion Yen. That’s A Real Number, Apparently.

  1. Well I think Dr.H……..as well as others , by presenting the real world situation are by implication describing a scenario that leads to the following conclusions : The Financial systems are likely irrevocably broken and the cure all MMT has been upon us longer than we suspected..Corrective actions of any sort are bordering on surreal and by the way the Political systems are in a state of chaos….The public is
    one step away from living out the realities of Orwell’s 1984…some happily others not so…
    Not sure , what can be done that has not been attempted that has a potential for success… Seems however that by not attempting a steadfast resolution of the crisis in 2009 (GFC) a few nails were put into the coffin that we seem to all be inhabiting..I said it at the time (2009) “next time this happens you can run but you can’t hide” . Out of the chaos will rise a new World Order……and hopefully a spirit of cooperation will define it….

    1. Yeah, I mean I hope readers understand that the point of my pounding the table on this isn’t so much to promote MMT (although I do lean in that direction), but rather to show everyone that we went down this road a long time ago, and all we’re really doing currently is denying it, while the middlemen (banks) sit in-between CBs and Treasury departments, for no real reason other than to obscure what’s going on. I don’t mean that it’s a conspiracy, of course. I mean exactly the opposite — it’s right out here for everyone to see. Also, I think the primary dealer middlemen do serve a purpose in a scenario where the conditions are in place for rapid growth in credit demand, a pick-up in the velocity of money, and a serious intention on the part of CBs to let the assets on the balance sheet roll off one day (i.e., passively shrink the balance sheet). But if all of that isn’t likely to happen, then persisting in this charade serves no purpose other than to inflate financial assets, when we could be directly financing infrastructure, etc.

      1. The issue about MMT I always intuitively suspected was upon us but I didn’t connect the dots until you hit us all over the head with it the last week or so…I was probably not alone in that blind spot though….

        1. Everyone is on a learning curve George or are die-hards. Can we go back to the reality of post gold standard/pre-MMT. Both are happening at the same time. For now ,pardon, it is what it is.

  2. A few months back, Jim Grant followed Dr H and declared that, like it or not, we already have MMT in the USA.

    In Japan they are reluctant to admit it as well. That is why they don’t do the rational thing which would be to have the MOF issue zero coupon perpetual bonds to the BOJ.

  3. I marvel at the extent to which this wonderful country is consistently in the vanguard of economic progress, despite being deeply attached to its own sense of conservatism. The clue, I think, lies in cyclicality. Most of the developed world turned its back on Keynesianism in the 80s when Japan kept largely with the post-war consensus. As the global fondness for government largesse returns, we look at Japan as ahead of the curve, when actually it’s nothing of the sort. Like an old pair of jeans, they’ve waited long enough for them to be cool again.

    The same goes for the corporate sector… suddenly all of those Western critics of cash hoarding are rediscovering the wisdom of a strong balance sheet.

    1. Who needs a strong balance sheet in this MMT-hybrid world of the Fed directly/indirectly buying private sector debt…

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