Helicopter Money Is Putting the Yen's Value at 'Great Risk': Noguchi

  • Ex-MOF Yukio Noguchi says helicopter money already happening
  • BOJ stimulus not raising investment, spending, prices, he says

Yukio Noguchi, a former Ministry of Finance official whose business books are best sellers, envisages a scenario in which a failure of Japan’s economic stimulus could drive the yen to weaken beyond 300 per dollar.

Yukio Noguchi in 2006. Photographer: The Asahi Shimbun via Getty Images
Yukio Noguchi in 2006. Photographer: The Asahi Shimbun via Getty Images

“If these fiscal and monetary policies continue, the yen’s value is at great risk,” the 75-year-old professor at Tokyo’s Waseda University said in an interview on May 11. “If you base your thinking on the efficient-markets hypothesis, you can’t predict a level for the currency. But, if the nation’s economic strength weakens, it is possible the yen could drop to 300, or 500, or 1,000 to the dollar.”

Growth has stagnated for a decade despite fiscal and monetary stimulus efforts that left the government with a debt burden that is the highest in the world, at about 2.5 times the value of the nation’s economic output. Noguchi believes the Bank of Japan is already financing fiscal spending, providing so-called helicopter money. That echoes comments by billionaire bond investor Bill Gross, who said the likely endgame was for the BOJ to forgive sovereign debt.

The problem with the extremely cheap money is that it gets channeled into unproductive areas, and allows “zombie companies” to continue to stay in business, said Noguchi, who has a Ph.D. in economics from Yale, and is currently an adviser at Waseda University’s Financial Research Institute in Tokyo. Even so, this stimulus hasn’t been effective, and capital investment, wages, and prices aren’t rising, he said.

For more on how Japan is paid to borrow.

“Japan is already doing helicopter money, as Bernanke describes it,” said Noguchi, whose economics books and life-hacking scheduler have sold millions of copies in Japan. “That’s what’s happening now under the BOJ’s asset purchase policy, with banks buying longer-maturity bonds and immediately selling them to the BOJ.”

Even with debt worth about 9.7 million yen ($88,000) per person in 2014, according to the IMF, the government is currently considering whether to postpone a tax increase which is meant to help pay for Japan’s rising social security costs. Lawmakers are also proposing using the current low interest-rate environment to issue more bonds.

Prime Minister Shinzo Abe has decided to delay the sales tax increase planned for April 2017 based on the global economic slowdown and the impact of last month’s Kumamoto earthquake, the Asahi newspaper reported.

Paid to Borrow

Japan is now being paid to borrow, as the BOJ’s massive purchases of bonds push down yields and drive up prices of the nation’s debt. And the cost to insure that debt has declined to 33 basis points on Thursday, the lowest since September 2014, according to CMA data.

While the yen’s more than 20 percent depreciation against the dollar since late 2012 when Prime Minister Shinzo Abe came to power has been integral to the central bank’s efforts to revive inflation, Noguchi argues that it has hindered growth in consumer spending. The dollar was at 109.88 yen on Friday morning in Tokyo.

“The reason consumption isn’t growing is that real incomes haven’t risen, and this is due to the weak yen since the Abe government came to power,” he said. “In the long-term, it is of course better if the yen strengthens.”

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