Abe Gets Green Light For More Insanity

Abe's ruling coalition wins lower house

Japanese PM Shinzo Abe's party, the LDP, has won the parliamentary snap elections as the NHK exit polls suggest. This comes amid one of the lowest turnouts ever (~52%) for a parliamentary election. Abe had announced plans to hold a snap election after he dissolved the country's parliament earlier in November after his consumer tax hike came into force.

The results from the exit polls are likely to be fairly accurate, practically landing Abe and his coalition a watershed victory with around 275 to 306 seats won't giving it a nearly two-thirds majority. With such a majority, Abe should have less problems enacting further change to Japan's constitution.

Put in other words, voters have technically given Abe, an eccentric individual who once resigned as PM due to diarrhea and was responsible for the mishandling of the Fukushima nuclear disaster, the green light to forge ahead with more insanity, more experimentation of monetary bazookas, and landing Japan in its fourth recession in 5 years.

Congratulations, because now that the lower house has been retaken, the upper house will quickly too fall into the wrong, ahem right, hands, ensuring at least a few additional years of muddling through.

What the main stream news calls "political and economic reform" is actually a candy wrapper for modern day Frankenstein, injected with steroids and let loose to wreck havoc on Main Street. Because let's recall what insanity could possible mean: doing the same things over and over again and expecting a different result.


Abenonics has been a disaster

And will continue to be an unmitigated disaster. Abenomics does nothing to adapt to Japan's aging baby boomers, a demographic nightmare, which in a few years will deal the country's fate to a cryogenic ice age of deflation. Abenonics is structural tax reform as raising taxes on consumers while lower them on corporations. Anenonics is getting the central bank to soak up what little liquidity is left in the Japanese government bond market, and also monetizing stocks all to the tune of ¥80 trillion a year. All that has done absolutely naught to right the sinking vessel.


In a recession and getting worse

After two sequential quarters of economic contraction, sentiment across the board continues to atrophy. This morning, the Tankan Manufacturing Sentiment Index worsened yet more in 4Q14. Consumer and business confidence looks set to tumble even further. Industrial production is slumping without any end in sight, inflation and inflation expectations have surpassed the lows of 2008 and is ripe to weaken further thanks to peak oil.

This chart from wolfstreet shows how Japan has enjoyed 3 recessions in the last 4 years alone. Growth was "high" in 1Q14 because of the consumption tax hike; consumers bought all they could, pushing forward expenditures before it eventually became more costly to do so. Doing so left an empty bag to contend with. Abe now plans to push back future tax hikes after realizing his mistake

This chart from wolfstreet shows how Japan has enjoyed 3 recessions in the last 4 years alone. Growth was "high" in 1Q14 because of the consumption tax hike; consumers bought all they could, pushing forward expenditures before it eventually became more costly to do so. Doing so left an empty bag to contend with. Abe now plans to push back future tax hikes after realizing his mistake

It remains to be seen what else Japan's savvy planners have in heir arsenal. Let me guess, they are probably on the thought that if they did enough of what hasn't worked, it will start working in the future. So it is logical to expect not ¥80trn more in BoJ monetization, but probably ¥800trn. By then however, the Chinese would have gotten so sick of Japan's currency war du jour, they should have already obliterated the state with a few nukes here and there.

The easy trades continue to be those that have a short Yen bias because the party hasn't ended. Far from it.