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from MacroScope:
Kocherlakota on Fed stimulus: Don’t stop ‘til you get enough
Ann Saphir contributed to this post
Minneapolis Federal Reserve President Narayana Kocherlakota has gone from being one of the U.S. central bank’s more hawkish characters to arguably its most dovish. In line with this transformation, Kocherlakota told a conference sponsored by the University of Chicago’s Booth School of Business that the Fed, despite its extensive bond-buying over the last few years, has not done enough to spur growth.
The FOMC has responded to this challenge by providing a historically unprecedented amount of monetary accommodation. But the outlook for prices and employment is that they will remain too low over the next two to three years relative to the FOMC’s objectives. Despite its actions, the FOMC has still not lowered the real interest rate sufficiently in light of the changes in asset demand and asset supply that I’ve described.
To get a sense of what he means, see the graphs below: U.S. inflation continues to undershoot the Fed’s 2 percent target, and is actually drifting lower, while unemployment, though down from crisis peaks, remains stubbornly high.
Vincent Reinhart, Morgan Stanley’s chief U.S. economist and a former senior official at the Fed's Board, even used the dreaded d-word in his latest research note to clients.
from Breakingviews:
Japanese workers need to go back to the 1980s
By Andy Mukherjee
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
Japanese workers are hoping for a 1980s revival. If the Bank of Japan’s 2 percent inflation goal appears daunting, meeting it in two years - as promised by new chief Haruhiko Kuroda - is even more of a challenge. For the central bank to succeed, wages will have to grow faster than they have in the past two decades.
from MacroScope:
Currency peace: G20 gives BOJ a pass for deflation fight
All the talk of currency wars is mostly just that – talk. This week’s meeting of the Group of 20 nations at the International Monetary Fund was living proof. Despite speculation that emerging nations would redouble their criticism of extraordinarily low rates in advanced economies, the G20 ended up largely supporting the Bank of Japan’s new and bold stimulus efforts aimed at combating years of deflation.
Mr. currency wars himself, Brazilian Finance Minister Guido Mantega, told reporters Japan’s monetary drive was understandable given its struggle with falling prices and stagnant wages, even if he called for close monitoring of its potential spillover effects.
from Global Investing:
Abenomics rally: bubble or trend?
"Abenomics" is the buzzword in Japan these days -- it refers to Prime Minister Shinzo Abe's aggressive reflationary fiscal and monetary policies that triggered the yen's 10 percent decline against the dollar and 17 percent rally in Tokyo stocks this year.
So it's no wonder that the Japanese mutual fund market, the second largest in Asia-Pacific, enjoyed the largest monthly inflows in almost six years last month, raking in as much as $11 billion.
from MacroScope:
Don’t fear inflation boogeyman: BofA’s Harris
Worries about potential side-effects of unconventional monetary policy on financial markets are at least exaggerated, if not a near figment of the imagination.
This appears to be the conclusion of a comprehensively-argued research note by Bank of America Merrill Lynch global economist Ethan Harris.
from Breakingviews:
Interview questions for the new BOJ chief
By Andy Mukherjee
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Japanese Prime Minister Shinzo Abe’s war on deflation will soon have a new general. A hard-charging Bank of Japan governor with strong conviction and oodles of savvy could help bring Abe’s plan to fruition.
from Breakingviews:
A how-to guide for Japan to escape deflation
By Andy Mukherjee
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Japan has a real chance of ending deflation. But the authorities need to act boldly. It will be hard for the Bank of Japan to dispel a decade of accumulated pessimism by merely adopting a formal inflation target. The goal of the central bank and the finance ministry should be to make people believe that price gains that didn’t occur in the past 10 years will now take place. A de facto currency peg may be the way to engineer those expectations.
from MacroScope:
Japan finally takes Bernanke-san’s advice – 10 years later
This post was based on reporting by Leika Kihara in Tokyo
Japan has crossed the monetary rubicon: the government is actively intervening in the affairs of the central bank, pressuring it to more aggressively tackle a prolonged bout of deflation and economic stagnation. The Bank of Japan is expected to discuss raising its inflation target from the current 1 percent level during its next rate decision on January 21-22.
Overnight, a Japanese newspaper reported the finance ministry and the central bank were considering signing a policy accord that would set as a common goal not just achieving 2 percent inflation but also steady job growth.
from MacroScope:
Resolving Shirakawa’s conundrum
The governor of the Bank of Japan, Masaaki Shirakawa, says he is confounded by the still very low level of Japanese government bond yields given the country’s elevated debt to GDP ratio of over 200 percent. Speaking on an IMF panel over the weekend, he offered a rather unintuitive explanation for the phenomenon:
It seems difficult to explain the case of Japan in light of conventional wisdom. One frequently offered explanation is that the ample domestic savings in Japan have absorbed the issuance of JGBs and the share of JGBs held by foreign investors is very small. But a more fundamental explanation is that the stability in the current bond yields reflects market participants’ expectations that fiscal soundness will be restored through structural reforms imposed in the economic and fiscal areas.
from Global Investing:
Japan… tide finally turning?
Until recently, when you mentioned "Japan" in the investment context, you could almost hear a collective sigh of disappointment -- it was all about recession, deflation and poor investment returns.
However, sentiment does seem to be finally changing, not least because Tokyo stocks have rallied almost 20 percent since the start of the year, outperforming benchmark world and emerging indexes.
