This is going to be a relatively short note focused on what is going on in Japan because of the news that Japan has ramped up its program of quantitative easing to new heights. Coming on the heels of the US Federal Reserve’s announcement that it would stop expanding its balance sheet with large scale asset purchases, the Bank of Japan’s announcement was music to the ears of Japanese equities investors. And shares in Japan promptly rose 4.8% on the news. The larger question, however, is whether QE is effective either at shaping future inflation or inflation expectations or at increasing nominal and real GDP. The evidence is equivocal. And so Japan presents a unique opportunity to see the limits of monetary policy tested.
Japan needs deep seated cultural changes, especially ones directed to greater female empowerment and more openness towards immigration. Japan needs a series of structural reforms – like those under discussion around the third arrow – but these would be to soften the blow of workforce and population decline, not an attempt to run away from it. Monetary policy has its limits. As Martin Wolf so aptly put it, “you can’t print babies”.
Russia is signalling de-escalation in Ukraine, at least on economics
The mobile battle is moving to India
The limited window on Abenomics is closing
The economic data out of the US and Spain yesterday were very good and support the idea that both of these economies are seeing recoveries that are accelerating. Some thoughts on the data below
The title here is a bit provocative I know. But it is really something I stole from an article about Stephen Roach’s view that I will use as a jumping off point for my Friday review.
Topics for today: Tail risk from Ukraine is increasing, giving rise to investment opportunity Argentina is still a basket case US housing will not add appreciably to a US growth acceleration I think the big news in the markets is still Ukraine. When I last wrote about the situation in Ukraine, I warned that, “It looks like we will get […]
Through the lens of someone looking at economies with rapidly ageing populations we can simply say that this problem arises because there isn’t any consumption to pull forward! Fisher’s interest theory was always valid, it is merely that in the context of a rapidly ageing population the consumption smoothing mechanism breaks for obvious and quite logical reasons. Quite simply, even in ZIRP you are not stealing a sufficient amount of “future” growth to kick-start the recovery because such future growth is not there.
By WIn Thin and Ilan Solot 1) The annexation of Crimea by Russia represents an important escalation of the crisis 2) China has re-emerged as a concern for markets 3) Turkish political tensions are rising again ahead of March 30 local elections 4) Brazil consumer inflation is accelerating, making central bank decisions more difficult going forward 5) Thai government may […]
I had four big topics in today’s links: Japan, China, Ukraine and Spain. I want to concentrate here on the two Asian countries over the European ones. The wage issue in Japan is an important one because it informs the policy choices in the US and Europe. And the Chinese slowdown is having a big impact on commodity markets, softening growth prospects in emerging markets and commodity exporters.
My contention has been that the first two arrows of Abenomics gave the Japanese economy a short window to bring the Japanese labour market back to full employment, re-ignite wage gains, and institute structural reforms. In my view, Abe has not used this window effectively and the stock market and economic gains of the beginning of 2013 are going to recede. Last month I predicted Abenomics would ‘fail’ as Japanese GDP growth slips below 0.5%. We are well on that path.
Japan’s deflation problem is overdetermined – there are multiple causes at work, any one of which could account for the observed phenomenon. Those who have been following the debate can simply choose their favourite – balance sheet recession, liquidity trap, fertility trap – each one, taken alone, could be sufficient as a cause. But I would here like to use the term “overdetermination” in another, less technical, sense, since it seems to me Japan’s problem set is overdetermined in that we always seem to be facing at least one more problem than we have remedies at hand.
The two main drivers of the capital markets today have been the biggest one day loss in the Chinese yuan and new that the preliminary Eurozone February CPI did not tick down as many expected. The headline rate was unchanged at 0.8%, though the core measure did rise to 1.0% from 0.8%.