When we first heard this past Thursday that private blogger and Citadel employee Ben Bernanke was going to “secretly” meet with both the BOJ’s Haruhiko Kuroda and Japan PM Abe, we warned readers that “something big was coming.”
As noted late last week, “Bernanke will be in Japan next week. It has been arranged for him to meet officials including Abe and Bank of Japan Governor Haruhiko Kuroda, according to a government official speaking on condition of anonymity. Bernanke is expected to discuss Brexit and the BOJ’s negative interest rate policy with Abe and Kuroda, the official said.” As Reuters added, “Some market players speculate Kuroda might decide, in a surprise, to provide “helicopter money” – a term coined by American economist Milton Friedman and cited by Bernanke, before he became Fed chairman, when talking about how central banks might finance government budgets as a way to seek to fight deflation.”
We concluded as follows:
So is it time? Is Bernanke about to unleash the next, and final, monetary policy evolutionary step, one which launches “helicopter money” in Japan, and if successful, brings it across the Pacific to the US?
We don’t know, but if anyone is still holding on to USDJPY shorts, now may be a good time to quietly close them out, because if Reuters is right, and a “helicopter money” is about to be served for the first time in modern history, things are about to get very volatile, very fast.
Two trading days later, with the USDJPY higher by 200 pips and soaring…
… after something big indeed came overnight from Japan: nothing less than the first “lite” instance of helicopter money .
First, this is what Reuters reported overnight:
Ben Bernanke, a former Federal Reserve chairman, visited the Bank of Japan on Monday, according to a Reuters witness. Government sources told Reuters on Friday that Bernanke, who steered the United States through its worst financial crisis in modern times, would meet with Bank of Japan Governor Haruhiko Kuroda and Prime Minister Shinzo Abe this week.
Reuters was not immediately able to confirm whether Bernanke met with Kuroda.
Last week government sources said Bernanke was expected to discuss Britain’s vote to leave the European Union and the BOJ’s negative interest rate policy.
It would appear that something else discussed was the first iteration of helicopter money, because the catalyst that sent both the Nikkei soaring and the Yen tumbling, was not so much Kuroda’s whirlwind victory in Japan’s latest election – largely as expected – but Abe’s announcement that he may proceed with launching a JPY10 trillion stimulus, funded by Japan’s first new major debt issuance in four years. From Bloomberg:
The Topix jumped 3.8 percent to 1,255.79, its largest advance since Feb. 15, as Abe said he will order the preparation of an economic stimulus package tomorrow. A person familiar with the matter said Bank of Japan Governor Haruhiko Kuroda met with former Federal Reserve Chairman Ben S. Bernanke over lunch in Tokyo on Monday, also boosting speculation for easing. Japan stocks further benefited as better-than-expected U.S. payrolls helped spur a global equities rally.
“With hopes that stimulus will come earlier than expected, investors are seeing it as an opportunity to buy,” said Hiroaki Hiwada, a Tokyo-based strategist at Toyo Securities Co. The report on Bernanke’s visit “makes it natural for speculation to emerge on additional easing.”
Abe will hold a cabinet meeting on economic measures on Tuesday and consider more than 10 trillion yen ($98 billion) in stimulus, the Nikkei newspaper reported. Following the meeting with Kuroda on Monday, Bernanke will meet with Abe tomorrow, Reuters reported.
“It’s positive for stocks that the ruling party has won so many seats,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Center. “History shows that when the ruling party wins the upper house, Japanese stocks are stronger afterwards.”
Bloomberg adds the following, when reporting on Shinzo Abe overnight speech in Tokyo, a day after winning an increased majority in upper house elections.
- Want to make most of zero interest rate environment to utilize fiscal investments
- Economy stimulus to establish 21st century infrastructure; speed up construction of high-speed train lines
- Will consider size of economic measures from now
- Measures to support domestic demand
However, it is not just as $100 billion fiscal expansion coming out of Japan: it is coming in conjunction with an imminent expansion in BOJ monetary stimulus: “The Bank of Japan is set to announce an expansion of its monthly bond and equity purchases on July 29 and Abe will probably introduce fiscal stimulus by year-end, according to Macquarie Bank Ltd.”
So is this the start of “helicopter money”? It would appear so.
Here is the broadest definition of the term from Jefferies: “The important distinction of helicopter money compared to QE or conventional deficit financing is that it is a combination of extreme monetary easing and fiscal relaxation.“
Which, incidentally, is precisely what Japan is now planning to do, and in doing so, it has given the world a glimpse of not only how “helicopter money” will look, but also the market’s enthusiastic response, which needless to say is music to the ears of central bankers everywhere.
So well done, Blackhawk Ben: while you never managed to unleash helicopter money in the US, you finally succeeded in bringing it to Japan which will now be a trial balloon for the rest of the world: if it works, expect many more instances of “extreme monetary easing coupled with fiscal relaxation” around the globe, just as Russell Napier previewed yesterday.
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