Perpetual Quantitative Easing for Dying Japan. The Japanese QE Story for 2022.

Way back on 19-September-2013, I published a work of mine titled, Lost Decades are Becoming the Lost Quarter Century with Abenomics. In that work, I mentioned the folly of quantitative easing. The Bank of Japan engages in Quantitative Easing because Japan is dying.

Why Perpetual Quantitative Easing: Dying Japan

The Japanese are in terminal population decline. Japanese population peaked in 2009 at 128.56 million. Current population is near 125.6 million. By the end of this decade, the population estimate comes in at 120.8 million. By mid-century, the population will fall to 105.1 million.

It should be obvious that on falling population, there is need for less credit. In the absence of central bank intervention under a system of irredeemable bank note currency, falling credit leads to falling prices. Falling prices means collateral loses some of its worth. That means banks become impaired if not insolvent.

So as long as the Bank of Japan whips up checking account credits ex nihilo and buys bonds issued by the National Diet of Japan, its legislature, the economy will be flooded with Yen. This will increase prices and give the illusion of a growing economy.

Likely though, in true terms, unless current Japanese workers have become substantially more productive than workers of the past, the Japanese economy is shrinking. This likely shrinking is happening in proportion to the population decline.

In 1970, when the population tallied to 104.9 million, the annual number of hours worked average came to 2,243. By 2019, the year before Covid-19 lockdowns messed up statistics, the annual number of hours worked average came to 1,644. In other words, in 49 years, Japanese workers worked on average fell -26.7%.

In 1970, Japan GDP in US dollars summed to US$212.6 billion, or $2026.69 per capita. By 2019, Japan GDP came to US$5.065 trillion. Per capita, that is $39,913.32.

If we are to believe in nominal terms, the typical Japanese worker in 2019 became 18.7 times more productive than a Japanese worker in 1970 on 2.7 times fewer hours worked.

Of course, that belief would be false. In True Dollars terms, 1970 per capita GDP comes to $2,084.85 while 2019 per capita GDP comes to $2,226.51.

In other words, Japanese workers today are only 6.8% more productive rather than what one would be forced to believe, 187% more productive, based on current quotation GDPs of 1970 and 2019.

If Japanese today worked the same number of hours on average as their 1970 counterparts, in nominal terms, Japan's GDP should have been US$5.712 trillion in 2019 rather than US$5.065 trillion. If 2019 workers were only as efficient as 1970 workers, 2019 GDP should have been $5.324 trillion.

Death By Quantitative Easing to Infinity

Yesterday, the Japanese yen dropped after the Bank of Japan vowed to buy an unlimited number of Japanese government bonds in order to hold the 10-year yield under its 0.25% target. If the BoJ is willing to buy an unlimited quantity of bonds, that means the BoJ will create an unlimited quantity of yen merely by tapping away at keyboards. In other words, the new policy of the BoJ is quantitative easing to infinity.

The BoJ has been monetizing Japanese government debt for decades. The debt-to-GDP ratio in Japan is at about 250%.

Quantitative easing lets the BoJ paper over any decline in asset prices while simultaneously lets politicians squander huge sums on social spending, which instills confidence for politicians by the public.

Sadly, like their American counterparts also who live under a fiduciary monetary system of irredeemable bank notes currency, Japanese are unaware of their current situation.

Outside of distracting nifty electronic gadgets all connected to the Internet, life for Japanese today has not improved substantially for Japanese in 2019 from Japanese in 1970.