Comments on: Casting doubt on Japan’s new economic experiment Thu, 21 Jul 2016 07:57:19 +0000 hourly 1 By: MarkAurelius Fri, 08 Nov 2013 11:18:44 +0000 Obama can only wish he had the skills of the intrepid new Japanese Prime Minister…less than a year in office, and he has already achieved his goal of 2% inflation…and economic growth is up to 4%…Meanwhile, in the fifth year of the laughtingstock “Obama economic recovery”, growth has slowed to about 1.5% this year, wages remain flat, business confidence remains at near record lows, and budget deficits are stuck at nearly $1 trillion yearly…Less than a year after being re-elected, Congress is walking all over him again…he looks about two feet tall after the recent government shutdown…No joy in Muddville, that is for sure…

By: LuisdeAgustin Fri, 12 Apr 2013 19:40:56 +0000 Since last September when Japanese Prime Minister Shinzo Abe came to power and donned pink colored glasses, the yen has declined about 18 percent against the US dollar and 9 percent relative to gold. Mr. Abe’s explicit goal is to increase Japanese inflation to two percent. At first sight, the stock market welcomed the new policy, with a gain of 34 percent over the last six months, but that’s in yen. In dollars, the Japanese market has returned 12.6, not much more than the 10.7 return earned by the recession ridden euro zone.

Strategic investment research consultancy, Wainwright Economics, continues to suspect that stock market gains in the US, Europe and Japan alike have been carried more by an acceleration of growth in the emerging world than by domestic economic improvement. The research house believes that a weak yen will not help Japan any more than a weak dollar has helped the United States historically, notwithstanding the initial rosy picture.

In an update to analysis that Wainwright Economics published over ten years ago, the work demonstrates that inflation has been bad for Japanese economic growth and that much feared deflation has been a blessing. Although Wainwright asserts that inflation is the wrong goal for Japan, there is plenty of evidence that weakening the yen is the right way to go about achieving it; except that the convention of expressing currency change relative to the US dollar does not work in a world in which the dollar itself is a variable.

When considering currency rallies or tumbles, these need to be compared relative to something else, says Wainwright’s head of research David Ranson. If the rally, for example, is relative to the euro and/or another currency, then it must be said that currency values are primarily the result of government policy and of agreements between governments. Only secondarily or derivatively do they respond to economic factors such as relative growth rates or the current account deficit.

According to Ranson, major currencies do not really float. While there’s no publicly announced agreement among the US, European and Japanese central banks regarding exchange rates, “closet pegging” prevails. None of these regions will allow the others’ currencies to be significantly cheaper than its own, threatening to undercut its export industries. Behind a veil of secrecy, there are talks and negotiations about this all the time. Japan has so far been given leave to talk down the yen, but at some point, there will be opposition. When Japan’s finance ministry’s cool shades are finally flipped up, it may unfortunately see a monochromatic economy sinking below the horizon.

Luis de Agustin

By: Fri, 12 Apr 2013 05:29:59 +0000 It is a shortcut, but a shortcut to nowhere.