WEBVTT - Brendan Brown on The BOJ's Bloated Balance Sheet

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<v Speaker 1>Broadcasting live to New York Bloomberg eleventh, Brio to Washington,

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<v Speaker 1>d C. Bloomberg to Boston Bloomberg twelve hundreds to San Francisco,

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<v Speaker 1>Bloomberg nine to the Country's series Exam General one, and

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<v Speaker 1>around the globe the Bloomberg Radio plus Appen Bloomberg got Gone.

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<v Speaker 1>This is taking stock coming up on taking stock, will

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<v Speaker 1>take stock off the Bank of Japan and it's well

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<v Speaker 1>non action when it comes to stimulus and the economy.

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<v Speaker 1>We've got details. We'll be speaking with the Brendan Brown.

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<v Speaker 1>He is the chief economist and head of economic research

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<v Speaker 1>at Mitsubishi u f J Securities. But right now, let's

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<v Speaker 1>go to Charlie Pett and the Bloomberg News from Corey

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<v Speaker 1>Bloomberg Business Flash, and I think if him Fox, let

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<v Speaker 1>us begin with the Bank of Japan. It kept its

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<v Speaker 1>key monetary tools unchanged and will mount a comprehensive review

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<v Speaker 1>of its policy framework due to quote considerable uncertainty about

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<v Speaker 1>the outlook for inflation, which has consistently underperformed the central

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<v Speaker 1>banks forecast. James Sweeney is chief economist at Credit Suite Securities.

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<v Speaker 1>I think a review makes sense. I mean, they're they're

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<v Speaker 1>closing in on of the bond market owned by the

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<v Speaker 1>BOJ and moving towards fifty and sixty on the on

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<v Speaker 1>the current plans um hasn't worked so far, and market

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<v Speaker 1>expectations are swinging around. I mean, this week, people really

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<v Speaker 1>expected them to come in and and do helicopter money.

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<v Speaker 1>I didn't think it seemed like that reasonable in expectation.

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<v Speaker 1>Now it's been disappointed. The US Commerce Department says the

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<v Speaker 1>economy expanded in the second quarter at a one two

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<v Speaker 1>percent raised, lesser than projected, after an eight tense of

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<v Speaker 1>one percent advance in the first three months of the

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<v Speaker 1>year that was weaker than previously estimated. The medium forecast

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<v Speaker 1>of economists surveyed by Bloomberg called for a two and

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<v Speaker 1>a half percent second quarter increase, and consumer confidence is

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<v Speaker 1>measured by the University of Michigan and slid in July

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<v Speaker 1>from the prior month on tim reviews of the U

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<v Speaker 1>S economy's prospects and lingering concerns among hiring common owners

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<v Speaker 1>about global market conditions, x On Mobile and Chevron, missing

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<v Speaker 1>profit and production estimatess, wildfires, write downs and weak refining margins.

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<v Speaker 1>Battered oil explorers already reeling under a glut driven price collapse.

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<v Speaker 1>X On Mobile down one point seven percent and Chevron

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<v Speaker 1>is up by four tenths of one percent. Crude Oil

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<v Speaker 1>West Texas Intermediate of one percent forty one of fifty

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<v Speaker 1>three for a barrel of crude gold up eighteen forty

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<v Speaker 1>announced the thirteen fifty SMP of five, a gain of

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<v Speaker 1>two tenths of one percent to thirty two on Wall Street.

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<v Speaker 1>Now we'll look at the other stories making news. Thank you,

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<v Speaker 1>Charlie from the Bloomberg News Room. I'm Jill Schneider. Hillary

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<v Speaker 1>Clinton and running mate Tin Kine are hitting the road today.

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<v Speaker 1>The two were taking a bus trip through two battleground states,

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<v Speaker 1>Pennsylvania and Ohio. Donald Trump is back on the road

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<v Speaker 1>to appearing in Colorado Springs. Trump's run nate Mike Pants

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<v Speaker 1>joined fellow bikers today in his home state of Indiana

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<v Speaker 1>for the annual Motorcycle Ride with the group a bait

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<v Speaker 1>American Bikers aimed towards education. Before he redd off, the

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<v Speaker 1>GOP vice presidential nominee spoke to reporters, Let's make it

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<v Speaker 1>a safe ride. Let's make it a fun ride, but

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<v Speaker 1>let's make it a ride. Let's make it a ride

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<v Speaker 1>that sends a message all over this state that here

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<v Speaker 1>in the state of Indiana, we stand with those who serve.

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<v Speaker 1>There's more fallout from the Flint water controversy. Bloomberg's Michael

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<v Speaker 1>Barr has more. Michigan's attorney general has charged six more

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<v Speaker 1>state employees with crimes related to the lead contaminated water

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<v Speaker 1>crisis in Flint. According to the Flint Journal, a judge

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<v Speaker 1>signed off on the charges filed by Michigan a g

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<v Speaker 1>bill shooting. Flint, a city predominantly black with a population

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<v Speaker 1>of about a hundred thousand people, used the Flint River

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<v Speaker 1>for tap water eighteen months ago to save money, but

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<v Speaker 1>the water was contaminated with lead after it flowed through

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<v Speaker 1>aging pipes. In April, two state regulators and a city

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<v Speaker 1>employee were charged with official misconduct. Michael Barr Bloomberg Radio

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<v Speaker 1>in Connecticut. Today, the public is getting a glimpse of

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<v Speaker 1>the new Sandy Hook Elementary School built to replace the

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<v Speaker 1>one where twenty first graders and six educators were murdered.

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<v Speaker 1>The old facility was torn down in December two thousand

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<v Speaker 1>twelve after the rampage. The new school was built on

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<v Speaker 1>the same property, but not in the old footprint. It's

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<v Speaker 1>scheduled to open next month. Global News twenty four hours

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<v Speaker 1>a day, powered by more than twenty journalists and analysts

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<v Speaker 1>in more than one twenty countries. I'm Jill Schneider, and

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<v Speaker 1>this is Bloomberg, Charlie, and we thank you, and again

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<v Speaker 1>recapping a move higher for US equities SMP five hundred

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<v Speaker 1>index trading very close to a record now up five

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<v Speaker 1>a gain of two tenths of one percent. I'm Charlie Pellett.

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<v Speaker 1>That's a Bloomberg business flash. You're listening to taking Stock

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<v Speaker 1>with Pim Fox and Kathleen Hayes on Broomberg Radio. All right,

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<v Speaker 1>Matt Miller here with Pim Fox. We're gonna bring in

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<v Speaker 1>Brendan Brown, Chief Economists and head of Economic Research MITSUBI

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<v Speaker 1>U f J Securities on what I think is one

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<v Speaker 1>of the most interesting topics of the week of the month. Really,

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<v Speaker 1>I think the Bank of Japan is more exciting right

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<v Speaker 1>now than a Bank of England, Bank of Europe, Bank

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<v Speaker 1>of England e C B OR or the Fed. Brendan

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<v Speaker 1>to me, it's the idea, even though it's kind of

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<v Speaker 1>been shot down of helicopter money, that keeps this story

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<v Speaker 1>so fascinating. Why can't Carona do anything to get inflation going? Well,

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<v Speaker 1>But they have been having a helicopter money for two years.

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<v Speaker 1>We've had the budget deficit running at six of GDP

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<v Speaker 1>and effectively of the Bank of Japan has been buying

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<v Speaker 1>bonds essentially the next day after the issued from the banks.

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<v Speaker 1>So helicopter money is here. But the reality is you

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<v Speaker 1>can only get inflation up if there's about of strong growth.

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<v Speaker 1>You need to have strong demand growth in the economy,

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<v Speaker 1>and that they failed to have all together. And I

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<v Speaker 1>would say the main two reasons for that have been,

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<v Speaker 1>first of all, the extent of uncertainty created by all

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<v Speaker 1>this monetary experimentation, and secondly, of course we've had the

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<v Speaker 1>complete lack of economic reform, which was meant to be

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<v Speaker 1>the third pillar of the RB economic But Brendon, how

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<v Speaker 1>can it be impossible to get inflation going if you're

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<v Speaker 1>just sitting there printing money. And the Bank of Japan

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<v Speaker 1>now has a balance sheet that's the size of or

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<v Speaker 1>surpassing the Feds any day now, Um, it's more than

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<v Speaker 1>I think eight percent of their entire g d P.

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<v Speaker 1>And if you're just printing money, willy nilly, who's going

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<v Speaker 1>to continue to put faith in your fee currency. Well,

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<v Speaker 1>that's a big question the Japanese themselves. When are they

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<v Speaker 1>going to run out of the end? When are we

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<v Speaker 1>going to get capital flight out of Japan. What we

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<v Speaker 1>had in the first two or three years of urb

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<v Speaker 1>economics is there was a huge amount of speculation against

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<v Speaker 1>the end, essentially foreigners going short in the end borrowing yen.

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<v Speaker 1>But the Japanese themselves and not go head over tails

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<v Speaker 1>into buying foreign assets, so they continue to have this

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<v Speaker 1>bias in favor of their domestic market. For the for

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<v Speaker 1>the policy to um produce high inflation, you either have

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<v Speaker 1>to have some sort of capital flight like in the

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<v Speaker 1>ultimate you had in them republic um, or you have

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<v Speaker 1>to have very strong domestic demand being stimulated by this.

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<v Speaker 1>But but neither of that have happened. I think one

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<v Speaker 1>or two of those will happen if they continued with

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<v Speaker 1>this policy for the next five years. You know, if

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<v Speaker 1>you if you look at the future for Japan, there

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<v Speaker 1>will be a discontinuous shift at some point into high inflation.

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<v Speaker 1>But it's not something that happens gradually. It happens in

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<v Speaker 1>a discontinuous version. Is there a bond bubble definitely there's

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<v Speaker 1>a bond bubble because you're looking at ten year yields

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<v Speaker 1>in the j GB market, which slightly negative minus nor

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<v Speaker 1>point two. Yet if you take any reasonable scenario approaches

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<v Speaker 1>to what's going to be happening in Japan the next

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<v Speaker 1>five to ten years, you would have to put a

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<v Speaker 1>significant probability on this high inflation the yen collapse at

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<v Speaker 1>some point. So anyone buying jgbs at these sort of

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<v Speaker 1>yields um using some sort of fantasy, fantasy calculation, I

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<v Speaker 1>would say nobody is buying bonds at these low yields

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<v Speaker 1>and negative yields except for the Bank of Japan itself

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<v Speaker 1>or foreigners doing an arbitrage in two dollars and getting

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<v Speaker 1>a hundred basis points over treasuries. So the bubble is

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<v Speaker 1>actually in the sense that you've got a lot of

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<v Speaker 1>institutions and investors holding these bonds that huge profits compared

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<v Speaker 1>to where they bought them, but they're not going out

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<v Speaker 1>and taking the profits. At some point they will that's

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<v Speaker 1>when the bubble will best, all right. So that's describing

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<v Speaker 1>what's going on at the Bank of Japan with the

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<v Speaker 1>Government of Japan. They are proposing a twenty three cent

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<v Speaker 1>an hour increase in the minimum wage. They also want

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<v Speaker 1>to increase the benefit to low income individuals for about

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<v Speaker 1>ninety five dollars a year, and they want to lower

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<v Speaker 1>the unemployment insurance pre meum over a number of years.

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<v Speaker 1>Why do all of these very small things if they're

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<v Speaker 1>not going to have any effect on the larger picture. Well,

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<v Speaker 1>as you say, in in and arithmetic terms, the budget

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<v Speaker 1>proposals which have been leaked out of the RB administration

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<v Speaker 1>amount net net net about nor point six or nor

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<v Speaker 1>point seven percent of GDP, So that's not going to

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<v Speaker 1>be a game changer. Although I would say that when

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<v Speaker 1>you take account of all the subsidized lending that explodes

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<v Speaker 1>that package by about three times, I would very much

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<v Speaker 1>expect the credit rating agencies to be downgrading japan debt

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<v Speaker 1>and that may be one of the triggers eventually two

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<v Speaker 1>a week a year and bursting the bond bubble. But

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<v Speaker 1>I but I think the package, once seen so far

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<v Speaker 1>as one knows about it, it's very much carrying out

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<v Speaker 1>the pledges that were made in the Upper House elections

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<v Speaker 1>two weeks ago and rewarding basically the core groups for

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<v Speaker 1>support the LDP governments, such as the construc auction companies,

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<v Speaker 1>so you're seeing a package which has weighted towards those

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<v Speaker 1>political interests. Brendan Corona Themes seems to want to have

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<v Speaker 1>a rethink here. What do you think he's going to

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<v Speaker 1>come up with? Is it possible that we'll get in

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<v Speaker 1>about face. I don't think Kuroda himself doing an about faith.

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<v Speaker 1>Central bankers don't in general, and I don't think Coroda

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<v Speaker 1>is an exception um walk back on their policies in

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<v Speaker 1>that way. If it's going to be any change to

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<v Speaker 1>the monetary targets or monetary policy in Japan, it would

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<v Speaker 1>have to come from RB himself deciding to replace the

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<v Speaker 1>leadership in the Bank of Japan and explaining that the

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<v Speaker 1>policy has failed. But I don't see any signs of that.

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<v Speaker 1>Thank you very much for joining us Brendan Brown as

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<v Speaker 1>chief economist and head of economic research at Mitsubishi u

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<v Speaker 1>f J Securities, giving us his perspective on the Bank

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<v Speaker 1>of Japan and their efforts to stimulate the economy. This

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<v Speaker 1>is Bloomberg. This Hampton's Commuter Minute is brought to you

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