This was posted by AlexD at Trader Dan’s Beehive Forum
And Dans Reply is very Interesting and Informative :

But first this from Uiguy at the Chartology forum

I suspect the BoJ is done Fully. Abenomics has failed and this is the capitulation rally. I don’t know how high it will go before the Yen starts its collapse. I suspect we’ll witness the chaos sooner than later given this speed.

Everyone should pull out their copy of Currency Wars by James Rickards (2011) and re-read Chapter 10 on Currencies, Capital and Complexity to see how the loss of confidence will spread exponentially. Pages 212-217 particularly.

I think this is the end game knights.

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Outlook for the Japanese Yen
Martin Armstrong 2012

Our long-term view in the Japanese yen appears often to be a paradox. As a nation implodes through the process of a Long Depression, the currency actually rises in value on world exchanges. Many too often assume that if a nation is imploding economically, its currency should inflate rather than deflate especially when its debt is rising excessively. This is one of the primary paradoxes that lead many to massive losses during periods of tremendous confusion created by a Long Depression.
The famous Long Depression was a worldwide economic recession, beginning in 1873 and running through 1896 that was 23 years in length. This is the ideal target for the duration of Japan bringing us to 2013. The outside timing ban can extend 26 years bringing us to 2016. However, 2013-2014 appears to be the more likely target for the demise of Japan.
Some have classified the famous Long Depression as beginning in 1873 extending into the spring of 1879 lasting 65 months. This shorter version was the primary phase transition just as was the case during the Great Depression of the 1930s (1929-1932). That marks only the extreme first decline whereas the recovery that follows is what traders call the “dead-cat-bounce”. It was most severe in Europe and the United States, but is generally considered to have been a worldwide phenomenon. This followed a period of strong economic growth fueled by the Second Industrial Revolution in the decade following the American Civil War. This can be equated to the Japanese Miracle whereby the Second Japanese Industrial Revolution (post-Meiji) took place as Japanese manufacture began to dominate the world symbolized by their auto production in the 1970s & 1980s.

The Long Depression was a worldwide event becoming the second truly international crisis following the Panic of 1857 and materialized in the form of a private debt crisis. There had been excessive optimism following the American Civil War that had been driving booming stock prices in central Europe and America that had reached a fever pitch. There were rising concerns that this was a bubble economy with much doom & gloom at the time. Nevertheless, the Long Depression culminated in a Panic of Vienna beginning in April 1873 precisely where the Panic of 1929 had also began. The collapse of the Vienna Stock Exchange took place on May 8th, 1873 and continued until May 10th, when the exchange was then closed for 3 days. The crisis was at first assumed to have been confined to Austria-Hungary.
It is vital to understand why this crisis began in Austria as was the case with the Crash of 1929. The Austrian Empire was a modern era successor empire, which officially lasted from 1804 to 1867. The Panic of 1873 was the start of the real decline and fall of that empire that had begun as the Holy Roman Empire (962-1806AD), overlapped by the Habsburg Monarchy (or Habsburg Empire) (1278–1780) that culminated with the reign of Maria Theresa (1717-1780) whose coinage became the monetary standard in world trade a status the yen did not reach. The Maria Theresa “thaler” was effectively the US dollar of its day. It was 1867 when the Austrian Empire became the Empire of Austria-Hungary, which was the breakup of Austrian Empire that became official with the Austro-Hungarian Compromise of 1867 that established the dual monarchy of Austria-Hungary. The Compromise re-established the sovereignty of the Kingdom of Hungary, separate from and no longer subject to the Austrian Empire. Under the Compromise, the Austrian and Hungarian regions of the state were governed by separate parliaments and prime ministers. The Austro-Hungarian Empire (1867-1918) was itself dissolved by the victors at the end of World War I and broken into separate new states.
The Panic of 1873 has been described as financial panic that finally arrived in America only several months later on Black Thursday, September 18th, 1873. It was marked by the failure of the banking house of Jay Cooke and Company over the Northern Pacific Railway after a bond issue for $100,000,000 in capital for the company proved unsalable. Once the confidence in private debt collapsed, it spread like wildfire creating a contagion that resulted in several other major bank failures. Even the New York Stock Exchange was forced to close for ten days on September 20th, 1873. The similarity with then and now is this time we are facing a Sovereign Debt Crisis where by the declining confidence is in the PUBLIC debt sector rather than private.

It was this Depression that was first called the “Great Depression” and it retained that designation until the Great Depression of the 1930s that was instigated by a Sovereign Debt Crisis that began also in Austria. It was most notable in the United Kingdom but overall it was a long drawn out affair that had been continuous from 1873 to as late as 1896 when the United States was on the verge of bankruptcy and J.P. Morgan had to raise a gold loan to save the credit of the United States. It was the Long Depression that extended beyond the first phase of 1873–79, that had been kicked off by the Panic of 1873 that ran from October 1873 to March 1879 (65 months) almost twice the duration of the Great Depression of the 1930s (34 months), and culminated in the Panic of 1893. Where the Long Depression was marking the shift in economic power away from the Austrian Empire, the Long Depression in Japan is marking the end of the Japanese Miracle.

We can see that despite the Long Depression and the fact that Britain was the hardest hit, the British pound did not crack. Yes there is the spike high against the dollar. However, this was caused by the abandonment of a gold standard in the USA during the Civil War. It is not a reflection of trends in Britain. Despite the Long Depression, the pound held its ground. It only collapsed with World War I. Therefore, despite the Long Depression in Japan, the yen has risen rather than declined. This is cause by a capital contraction whereby Japanese need money and bring home capital investment from overseas. This has kept the yen strong. It further fuels the economic decline creating real DEFLATION. There was a small rally in the pound just before its demise. This is what we remain looking for in the Japanese yen – that final capitulation. After that takes place, the yen will fall apart. First comes the DEFLATION and then when confidence collapses in the Japanese government, the yen will collapse as Phase Two.
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Trader Dan’s response:

Alex;

thanks for posting this. A very interesting read.

One thing of note that I would point out. Abenomics has actually really not been implemented.

When Abe ran for the office of prime minister, he advocated a three pronged approach to the economic problems in Japan.
1.) monetary expansion
2.) fiscal stimulus
3.) structural change.

The monetary expansion stage was implemented by the BOJ, However, and this is key, Abe never followed through on the other two. His team actually RAISED TAXES in 2014 ( the OPPOSITE OF STIMULUS). Nor did he implement the supply side reforms that he talked up during his election campaign.

Because of this failure, the emphasis was placed on increasing profits to Japanese companies by weakening the yen in the thought that those increased profits would be passed on to employees in the form of higher wages and thus the “virtuous cycle” would kick in and the inflation rate would begin to rise as consumers started spending those higher wages.

Guess what? Japanese firms DID NOT raise wages. They were concerned about sluggish growth prospects and were more concerned about maintaining pricing power in a very competitive global economic environment. Higher wages would preclude them from increasing profits especially if they were not able to raise prices due to the competitive pressures from abroad.

In other words, the only part of Abenomics that was implemented was the BOJ’s part. ABE actually killed off the economic spark that was created by hiking taxes for some dumb reason.

Now they are stuck. Unless Abe and company actually scrap the tax increase, implement the supply side efforts and follow through on their election promises, the Bank of Japan is powerless to do anything further short of dropping helicopter money, which Kuroda specifically noted last evening, in a response to a question on the topic, that the law precluded them from doing.

This is really going to be interesting to watch unfold. It looks to me like it is a real disaster in the making.

how very, very tragic and yet how very, very preventable. It all started when the Japanese real estate bubble broke and the government stepped in to prevent banks from being ruined by their own stupid loans. Sound familiar? That is what scares me.

We have two useless people who will be running for the presidency and neither one of them knows a single thing about any of this nor how to fix it.