This is is a guest post from Philip Pilkington, a writer and research assistant at Kingston University.
Well, it seems that everyone is talking about Japan’s Shinzo Abe’s so-called “Fourth Arrow” in his economic recovery program. That is, a plan to raise the consumption tax to eight per cent next year followed by a hike to ten per cent in October 2015. Can we tell anything about the likely consequences of such a move from Japan’s rather colourful macroeconomic history of the past twenty years? Yes, we can. Read more
The first bits of post-Abenomics data are finally trickling in. And so far, it has to be said, it’s looking good for Shinzo Abe.
Lombard Street Research’s Michael Taylor takes us through the initial findings (our emphasis):
A recovery in industrial production and consumer spending points to above-trend growth in Q2. Consumer price inflation may soon make a brief appearance above zero on the back of higher energy and import prices. But deflation isn’t beaten yet. The splurge of Japanese data overnight confirms the overall positive trend in the economy. Notably, industrial production increased by 2% in the month of May, the fourth consecutive monthly increase. Output in May was boosted by electronic components and machinery in particular. Both industrial production and exports are now on an upward trend (see chart below). To a large extent this recovery is due to the weaker yen. Although the yen is above its recent lows against the US dollar, it is still 19% lower than last November.
Whatever the final results of Abenomics, at least it has refocussed attention on a longstanding problem in Japan: the tremendous difference in labour force participation between men and women.
It’s an especially significant problem for Japan because of the country’s ongoing population decline. Read more
George Magnus, senior economic advisor at UBS has always been fond of demographics. In fact, he’s always warned the world about the dangerous side-effects of an ageing society, with specific reference to the case of Japan.
As he reminds us in a note on Wednesday: Read more
Kuroding yields and a Nikkei rout have put Abenomics on the back foot.
Goldman strategists Naohiko Baba, Chiwoong Lee and Yuriko Tanaka’s considered opinion is that Haruhiko Kuroda is just, well, bad at central banker speak.
They think the loss of “any positive market reaction” to Japan’s unprecedented easing has “largely been undone”, and lay the blame mostly at the Bank of Japan chief’s feet for his communications strategy, or lack thereof. Read more
That’s from Deutsche Bank today.
We joke, we joke. A little. Deutsche had of course already joined the commodities-supercycle-is-dead chorus, and this note is not from the commodities side but by Asia chief economists Taimur Baig and Jun Ma. Read more
It’s probably too early to say concretely that the great yen short of Abenomics has turned into the widowmaker of all widowmakers.
But evidence in favour of such a suggestion is certainly mounting by the day.
We present some examples from the commentary space… Read more
Slightly wearying, all this see-sawing in Japan. The Nikkei fell more than 6 per cent at one point on Thursday, though it had rallied a bit at pixel time. Still heading towards bear territory.
Some Nikkei investors spotted leaving the scene on Wednesday: Read more
The Nikkei was up 4.9 per cent at 13514 during the official Tokyo session, rising towards 13700 during after hours trading; the Topix was up 5.2 per cent and the yen 1.1 per cent weaker at Y98.6. Sigh… Read more
From the pen of South Korea over the weekend:
South Korea has warned that G8 leaders need to do more to tackle the “unintended consequences” of Japan’s monetary easing when they gather for a summit later this month amid mounting concerns about the knock-on effects of a weaker yen.
In an interview, Hyun Oh-seok, the South Korean finance minister and deputy prime minister, said that international co-ordinated action was needed to mitigate the impact of so-called Abenomics on currency markets.
First: “unintended consequences”? Not sure about that. It all seems very intentional from where we’re sitting. Read more
Who knows. But we can report that this report, from Reuters, caused a sharp trend reversal in Japanese equity futures on Thursday accompanied by a sudden weakening of the Yen.
That’s the Nikkei off 5 per cent on Thursday morning, its biggest fall since last week’s 7.3 per cent hit:
Both the Nikkei and the boader Topix have lost around 13 per cent in local currency terms since hitting peaks last week: Read more
The daily attempts of Bank of Japan and Japanese government officials to calm volatile equities/yields/yen is becoming dizzying. For Kuroda in particular it must be exhausting. The poor guy is everywhere.
Still, Tuesday’s efforts saw the Nikkei up 1.2 per cent and the yen down 1.2 per cent against the dollar and above Y120. However, Japan’s 10 and 5 year yields headed back above 0.9 per cent and 0.4 per cent respectively: Read more
John Calverley and team at Standard Chartered have a big report out looking at how a selection of developed economies are doing post-2008. The short answer is that the US has largely recovered from the crisis, with growth there likely to be above trend in 2014. The UK and Japan, meanwhile, are still behind in terms of balance sheet adjustment and effective monetary policy, while poor Spain “still has a long way to go.” Read more
The Nikkei 225 was clearly over-cooked. But just how over-cooked, we found out on Thursday…
Yes, the rally in Japanese equities has caught many an eye. There’s been hardly a step backwards in six months.
Yet prices seem to be accelerating from here. With the Nikkei 225 already up 1.6 per cent on Wednesday, closing at 15,627. Here is the after-hours action, courtesy of the CME: Read more
The Bank of Japan’s May statement on monetary policy is out, and it’s basically a big MAINTAIN on its ‘quantitative and qualitative easing’ (QQE) programme.
If anyone was anticipating the BoJ might take this opportunity to point out it is mindful of recent rises in government bond yields — and apparently some were expecting this sort of reassurance, possibly even tweaking maturities purchased — they would be disappointed. Equities traders just seemed relieved that their rally will continue.
However one member, Takahide Kiuchi, proposed the 2 per cent inflation target shift to a “medium to long term” and the new QQE plan itself be designated as “an intensive measure with a time frame of about two years”. Kiuchi’s proposal at this meeting was voted down by the other eight board members. The central bank has, however, already revealed that some members are concerned about the risks of its QQE plans hurting retail investors in Japanese government debt. Read more
Today in Abenomics, we saw some yen strengthening after Japan’s economy minister Akira Amari made remarks interpreted as indicating the yen had weakened enough:
“People say the excessively strong yen has corrected quite a bit. If the yen continues to weaken steadily from here, negative effects on people’s lives will emerge,” Amari told a Sunday talk show.
All very exciting and the yen strengthened accordingly, allowing us the space to take a longer look at the progress Japan’s reflation experiment has made. Read more
JP Morgan’s always interesting Flows & Liquidity team have weighed in on the great Japanese yield panic. Japanese government bond yields have jumped since the Bank of Japan launched QE on steroids at the start of April and volatility has risen with them — the 60-day standard deviation of the daily changes in the 10 year JGB yield jumping to 4bp per day, the highest since 2008 (that’s longer term yields on the right for a bit of context):
That has understandably scared people who remember the volatility-induced selloff shock of 2003. From JPM: Read more
One for the mantelpiece, Mr Abe:
(Click through the pic for the Economist article) Read more
Japan’s economy grew at the fastest pace in a year last quarter, with solid growth in consumer spending and exports suggesting the expansionary policies of Shinzo Abe, prime minister, are delivering quick and tangible results.
Government data on Thursday showed that real gross domestic product increased by 0.9 per cent in the three months to March, or 3.5 per cent in annualised terms. It was the second consecutive quarter of growth, after a rise in October-December that the government revised upward to 1 per cent.
That’s from the FT’s Jonathan Soble.
Of course, quite a lot happened after the end of Q1 as well. Read more
Nikkei 15,000 comes courtesy of a weak yen and increasing earnings expectations which carry some potentially elevated valuations with them. If you need any evidence of how sensitive the Nikkei has become to the yen’s rise, here’s a chart to ease your suffering:
But there are other things at work here. Read more
We thought the following from TD Securities’ Richard Gilhooly on Tuesday was a rather insightful way of looking at the whole BoJ effect (our emphasis):
While it remains a contentious point and as yet unproven, Japan’s devaluation and soaring Nikkei vs slumping DAX or Bovespa has all the hallmarks of a competitive devaluation. While competing factions debate the Monetary expansion/QQE, versus beggar-thy-neighbour interpretation, one positive aspect of the Japanese Yen collapse and fear of exported deflation has been collapsing commodity prices with weak growth in export countries (China, Germany, S Korea) and a stronger USD helping a supply story (crude inventories at 22yr highs) and weak demand send commodities into a bear market.
Now that we have Chinese socialites engaging in public cat fights over who is richer, posting snapshots of their bank accounts “Rich Kids of Instagram style“, one has to wonder if it may be worth revisiting John Hempton’s prediction last year that the Chinese authorities will finally crack down on this sort of over-the-top gratuitous wealth display, and when that happens the luxury brands — among them Swiss watches — will begin to suffer.
(*We should note the “I’m really richer than you” meme possibly applies to Prince Alwaleed bin Talal as well). Read more
This is is a guest post from Philip Pilkington, a writer and research assistant at Kingston University.
In January of this year I noted that the Japanese government was embarking on a stimulus programme and briefly enquired into whether it would likely work or not . At the time media commentary was mixed. Some were saying that it would be a complete failure while others were overflowing with optimism. I was slightly more reserved. Read more
Well, some of them at least. One of the big determinants of whether ‘Abenomics’ manages to pull Japan from its deflationary spiral is through wage growth. Inflation can’t really kick off or arguably even begin without rising wages. One can argue about how important wage growth is, or where it fits in causality-wise — and we’ll come to that later. But it is — or will be — an important signal as to whether this three-pronged approach of the new-ish Japanese government is working.
And actually, it might be catching on. Read more
… the Japanese seek inflation everywhere.
All this talk about Japan, JGB bond yields, QE, the yen… and hardly ever does anyone throw up the following chart.
So, without further ado, here is the most important Japanese chart of all courtesy of Capital Economics… the CPI: Read more
“Whatever we can”, you say? Encouraging words from BoJ governor nominee Kuroda over the weekend (even if comparisons with Mr Draghi are overblown). If Cullen Roche is correct, what happens in Japan over the next year or many could change the future of economic policy. So it’s worth spending a bit more time on what Kuroda’s “can” might actually be.
We’ve argued already that much of the low-hanging fruit of expectations and verbal intervention has already been plucked. Read more