China’s moves “discourage” Japanese corporations from doing business there, said the Japanese government on Monday. That’s exactly what has been happening for months. In a most dramatic way, and where it hurts China the most.
Japanese corporations no longer even try to invest in Japan, but they’re falling all over each other grabbing the Bank of Japan’s freshly printed dough to invest it overseas.
Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009) and “The Coming Collapse of the Municipal Bond Market” (Aucontrarian.com, 2009…
This coming Thursday Japan’s Ministry of Public Management will be releasing the January CPI figures. The report will be closely watched to determine the progress of “Abenomics”, as the nation tries to work its way out of the persistent long-term deflationary environment.
However, a number of analysts continue to be skeptical of Abenomics succeeding.
Derek Holt/Scotiabank – Here comes another round of Abe-hype, only this time, CPI inflation is expected to fall from the recent 1.6% y/y peak and that would further feed impressions that Abenomics is stalling out. The upturn in CPI inflation by December was still being heavily influenced by utility prices that were up 5.5% y/y due to the effects of yen depreciation on imported natural gas and oil prices, and higher electricity prices in the face of Japan’s continued shutdown of all of its nuclear reactors. Take energy and food — which is also probably under upward pressure in part due to yen depreciation — out of CPI and it is only up 0.7% y/y as food prices themselves are up 2.2%. Most of the CPI effects of the Bank of Japan’s efforts to depreciate the yen remain confined to a relative price shock to food and energy that crowds out spending power elsewhere in the economy on future second-round effects in the absence of a pickup in wage growth or credit access.
In spite of high expectations, the boost to exports generated by weaker yen has been more than offset by the rising value of imports (see chart). With the sales tax hike looming and wages remaining stagnant, the risks of Abenomics “stalling out” remain high.
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Japan’s current account continues to deteriorate, with the December number coming in below expectations – hitting a new low. For the whole of 2013 Japan showed the lowest surplus on record.
Kudos to the Bank of Japan. Its heroic campaign to water down the yen has borne fruit. The people may not have noticed it because it’s not indicated on their bank and brokerage statements, but 20% of their magnificent wealth has gone up in smoke …
Wage increases are vital for Abenomics – without them the current policies are simply unsustainable
The chart below shows the current account balance as a percentage of each nation’s GDP. And one nation clearly stands out – Germany.
Inflation without compensation and a consumption tax hike make a very toxic mix.