Progress and problems...
Japan’s government lowered its assessment of the economy on Wednesday as output sags, in a worrying sign that recovery is stalling as overseas demand weakens.
Mounting inventories have Japanese manufacturers losing their willingness to spend on new facilities and equipment. And an increasingly uncertain future is only making them more cautious.
The International Monetary Fund has called on the Bank of Japan to expand its monetary easing in an all-out effort to push inflation to 2 per cent.
In a dramatic intervention, the IMF warned Tokyo that the risks to Japan’s economy “are tilted to the downside”, and called for reinforcement to all three arrows of the Abenomics stimulus.
The IMF‘s call will pile pressure on Haruhiko Kuroda, BoJ governor, to take more action just as he signalled a move the other way — keeping monetary policy on hold, and striking a more upbeat tone on Japan’s economy.
The clash highlights growing tension more than two years after the start of prime minister Shinzo Abe’s three-pronged stimulus, with signs of stronger growth, but inflation still hovering close to zero.
Mr Kuroda insists the BoJ’s massive stimulus is working as planned, with rising incomes driving a “virtuous cycle” towards higher inflation, but the IMF said “the desired regime shift has not yet materialised”
Hugh Hendry's favorite position looks(and my only one in the market- short yen long nikkei) like it is set to payoff big time.
Last week, as the Federal Reserve officially announced the end of its long-term asset purchase program (commonly known as QE3), the Bank of Japan significantly ratcheted up its own quantitative easing program, in a surprising 5-4 split decision. Starting next year, the Bank of Japan will increase its balance sheet by 15 percent of GDP per annum and will extend the average duration of its bond purchases from 7 years to 10 years. The big move by Japan’s central bank comes amid the country’s GDP declining by 7.1% in the second quarter of 2014 (on an annualized basis) from the previous quarter following the increase of the VAT sales tax from 5% to 8% in Japan earlier this year and worries that Japan could fall into another deflationary spiral or fail to reach its stated goal of 2% inflation by 2014 (likely to be reformulated as 2% by 2015). The Government Pension Investment Fund (GPIF), Japan’s $1.1 trillion government pension fund, simultaneously announced its intentions to increase its overall equity holdings from 24% to 50% reduce its domestic bond holdings from 60% to 35%.
Bloomberg. He wonders what that means? So do I (on both points).
China looks bad, Japan and Europe are high but have decreased. Via Econobroser. (Thanks again Brent)
Can we say monetization boys and girls? -sure I knew you could. Its a beautiful day in the neighborhood.
Disappointing numbers for GDP. Time to double down on QE? Via Mish.
"Japan's economy grew less than expected at the end of last year, countering forecasts it would see higher spending ahead of a sales tax increase in April.
Gross domestic product rose by 1% on an annualised basis in the three-month period to December, compared with market estimates for a 2.8% expansion."
Textbook Ricardian equivalence and income smoothing perhaps?
Gross domestic product rose by 1% on an annualized basis in the three-month period to December, compared to market estimates of a 2.8% expansion.
But tonight we are going to party like its 1999.
Another brilliant investment letter. Via Zerohedge. If I understand his views correctly, I think this is my new viewpoint of how the world will unfold over the course of the next decade.
I summarize what (I think) Hugh's current investment views are....
I love the article and I think what he is saying is that his current view is that the game of one central bank responding by trying to outdo the next central bank by way of looser monetary policy is going to continue for the foreseeable future. The Japanese are the ones, because of their fragile situation, who will have to respond most aggressively to the game of competitive devaluation which should be good for Japanese equities but bad for the yen.
The world suffers from overcapacity and China, by doing more investment in the last decade than the US did in the last century, has added to the global overcapacity that already existed as a result of the thirty year debt super cycle.
Reforms will fail in China, Japan, Europe and the US. IE, politicians will fail to make the proper adjustments that that would stem inequality and unemployment in their country and that after several years would lead their economies to be self sustaining. This will cause central banks the world over to incrementally ratchet up (or perhaps in the case of the US Fed -fail to taper) their extraordinary policy response to new levels.
The results will be uniformly good for asset prices for the medium term. In the long run we will see a global macroeconomic crisis of unprecedented levels. In the mean time being long just about anything will yield you great returns.
Hendry is saying to his investors "I am joining the party" and will be a trend following lemming like everyone else, but I will also provide some disaster insurance that will offset the big collapse when it comes -so much so that you will make money f you are with me even when the world comes to an end - which it will with 100% probability.
Favorite line from the article (this is like asking me to chose b/n Beyoncé and Rhianna)
"The monster has to grow. Note that since the Fed turned the tables with its QE policy in 2009, China has had to consume more concrete in its roads, rail projects, bridges, factory construction and new buildings than the US did during the entire 20th century."
Noah Smith, an Economist (The Altantic writer) who lived in Japan assesses Abenomics.