The BOJ's Keynesian Disaster Worsens: GDP Back To Square One; Trade Accounts Still Deep Red

The good news in Japan for August trade figures is that imports fell 1.5% Y/Y, but that was balanced by an almost identical 1.3% Y/Y decline in exports. Confounding all orthodox expectations, the yen’s radical devaluation did nothing to press divergence between imports and exports as it was “supposed” to. Instead, imports matched exports, at best, and where it counted the most, Asia, they actually outpaced exports by some considerable amount.

ABOOK Sept 2014 Japan Trade Deficit YY Asia ex China

It doesn’t matter if you include China or not, the same trend appears in both series – a stunning development to anyone of the orthodox persuasion.

ABOOK Sept 2014 Japan Trade Deficit YY Asia w China

The net result of a massive intrusion into not just the trade system, but a wholesale interruption of the Japanese economy, has been disastrous. With economic activity in Q2 falling back all the way to the level it was where QQE began, there “should” be some steady improvement in the trade deficit. Yet, the trade deficit continues on without any appreciable progress over 2013. In fact, trade impoverishment continues in the “wrong” direction regardless of economy’s upward or downward shift. That represents the full-scale of how badly Japan has fared under this intrusive regime; a structural shift that has made the economy far weaker and less able to conduct beneficial expansion.

ABOOK Aug 2014 Japan Real GDPABOOK Sept 2014 Japan Trade Deficit

Right from the outset of QQE, the change in Japanese trade conditions, once its most vital and existential strength, has been turned inside out as deficits continue at more than ¥900 billion per month, every month. This steady erosion of productive economic capacity as more and more turns offshore represents a complexity never factored by the regression variables.

ABOOK Sept 2014 Japan Trade Deficit CumulativeABOOK Sept 2014 Japan Trade Deficit Jun Aug

Generic activity for the sake of generic activity, as the orthodox plan expected, does not exist. Redistribution is exactly that, only in almost every case serious attempts at it lead to the opposite place as intended because redistribution is not the same as economic expansion. In the case of Japan, it went so horribly wrong because orthodox economics still clings to the idea of a closed system. At least where redistribution takes place under the closed condition there might be more uplift to the process (but still most likely a negative net), but the real world exhibits nothing like a closed system and the attempt was doomed from the start.

Now the yen surges further toward debasement, as this steady decline instead conjures misplaced “hopes” for even more of the same. It is a dangerous proposition, where economic deficiency is tied directly to currency denouement.


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