Opinion

Anatole Kaletsky

Is Japan set to lead after 20 years of torpor?

Anatole Kaletsky
Dec 19, 2012 16:56 UTC

As 2012 draws to a conclusion, it’s likely that the fiscal cliff will be averted, U.S. politics and monetary policy are irrevocably set, European politics are suspended until September’s German election and the Chinese leadership transition is over. In short, the political and monetary uncertainties that have obsessed financial markets and paralyzed business have all been dispelled. As a result, 2013 promises to be a year for businesses and investors to focus again on economic fundamentals and corporate performance instead of delaying decisions while they waited with bated breath for the next euro summit, or election, or meeting of the Federal Reserve and European Central Bank. In one part of the world, however, events are moving the other way.

In Japan, economic and business conditions remain as dull as ever, but politics and monetary policy are suddenly exciting. And while the world has largely lost interest in Japan, the gestalt shift  in the world’s third-largest economy could have big implications for global business and for the way voters think about governments and central banks.

Last weekend’s landslide election of Shinzo Abe, a potentially powerful prime minister, was largely a result of his promise of a revolution in monetary policy designed to jolt the Japanese economy out of its 20-year stupor. If Abe delivers on his election rhetoric – still a big “if”, especially in a country where power is wielded mainly by bureaucrats rather than elected politicians – the global impact could be huge.

At a practical level, Abe has promised to force the Bank of Japan to print money and weaken the yen until Japan’s inflation rate accelerates to 2 percent and growth is restored. If he acts on this promise, the effect will be to strengthen the dollar, not only against the yen but also against the euro and other major currencies. If the yen weakens substantially, high-end exporters in Germany and the rest of Europe will stop gaining market share from Japanese rivals to offset their loss of competitiveness in the U.S. market. The same will be true for Korean and Chinese exporters, which have been crushing Japanese competitors hobbled by the strong yen.

Less obvious, but even more important, could be Japan’s impact on the global debate about macroeconomic management. The era when monetary policy was simply about controlling inflation is over. The consensus on macroeconomics created by the Reagan-Thatcher political revolution and the near-simultaneous monetarist revolution in economic thinking has broken down.

Europe needs Mario Monti more than ever

Anatole Kaletsky
Dec 13, 2012 00:59 UTC

Remember the euro crisis? For most of 2012, politicians, investors and business leaders were almost unanimous in their belief that the possible breakup of the euro would be a massive risk to the world economy. But today the euro is 5 percent higher against the dollar than it was six months ago, European stock markets have outperformed Wall Street by 11 percent in the same period, and Italian government bonds have been among the best investments of 2012.

The Nobel Peace Prize conferred this week to the European Union included three men who, under the EU’s byzantine institutional structure, are all entitled to be called “President of Europe.” With the award, it seemed as if the euro crisis might be almost over.

Silvio Berlusconi burst back onto the EU stage this month with his trademark chutzpah and slapstick timing, disparaging the technocratic government that has been given credit for putting Italy back on the road to financial prudence and thereby saving the euro.

Counterintuitive economics can help politicians

Anatole Kaletsky
Dec 6, 2012 02:32 UTC

Absurd wishful thinking. This is how most finance ministers describe criticism of their tough budget policies designed to control government debt and reduce borrowing. Britain, even more than Germany, has been in the vanguard of this austerity movement, as Chancellor of the Exchequer George Osborne demonstrated again in this week’s budget statement:

“Confronted with tough economic conditions, some say we should abandon our deficit plans, and try to borrow more – they think that by borrowing more, they can borrow less.”

For Osborne , this reductio ad absurdum seemed so conclusive that there was no need to justify his controversial economic beliefs.

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