Japan is facing an economic quandary: despite massive infusions of quantitative easing and even negative interest rates to stimulate its moribund economy, the yen remains stronger than officials would like. Now that Prime Minister Shinzo Abes ruling coalition has won a decisive victory in elections there, the nation has summoned one of the worlds biggest experts on money printing and currency debasement. That expert? Former Federal Reserve Chairman Ben Bernanke.
Bernanke met Monday with Bank of Japan Governor Haruhiko Kuroda, who is under pressure to try a new strategy at the BoJs July 28-29 meeting. Some market players speculate Kuroda might decide, in a surprise, to provide helicopter money a term coined by American economist Milton Friedman and cited by Bernanke, before he became Fed chairman, when talking about how central banks might finance government budgets as a way to seek to fight deflation, Reuters reported.
Bernanke himself outlined what he sees as the pros and cons of helicopter money (as well as other unconventional policy tools) in his blog at the Brookings Institution, calling such a plan presumably last-resort. The term is inspired by the image of direct helicopter drops of monetary stimulus in the form of tax cuts and/or fiscal and infrastructure spending, enabled by further central-bank money printing. Indeed, Bernanke also is slated to meet Tuesday with Abe, who already is working on a stimulus package reportedly worth about $98 billion.
We are going to make bold investment into seeds of future growth, Abe said Monday.
Well have to wait to find out what Kuroda and Abe have up their sleeves, but many Japanese investors arent being so patient. Numerous reports document increasing moves into gold in a nation otherwise not known for a deep appetite for the metal.
Japans largest bullion retailer, operated by Tanaka Holdings Co., recorded a 60% leap in the sales of the metal from May into June, even tripling on the day after the UKs Brexit referendum passed.
For investors, buying gold is similar to casting a no-confidence vote, former World Gold Council executive Itsuo Toshima told Bloomberg. Gold is the unprintable currency, unlike the yen. The yens appreciation in spite of the adoption of the negative-rate policy has kindled skepticism about the policys benefits. Its also led to investors seeking to protect their assets in case Abenomics fails.
Meanwhile, separate research found that Japanese investors also are increasingly buying and storing gold in Switzerland, with the number jumping by 62% in the first half of 2016 versus the last half of 2015.
With the metal up only about 7.5% so far in yen terms, versus the more than 25% gained by dollar-priced bullion, investors no doubt see room for further price appreciation if and when the Bank of Japans unconventional easing tools finally gain traction.
And although last Fridays jobs report from the Labor Department has lent some much-needed shine to the U.S. economy, other key indicators continue to suggest that the Fed will be keeping gold-bullish low interest rates in force for quite some time and eventually could be turning to negative rates of its own if things take a sharper turn for the worse.