Sunday, February 24, 2013

Japan’s Catch-22

Japanese Prime Minister Shinzo Abe is expected to nominate Asian Development Bank President Haruhiko Kuroda as head of the Bank of Japan (BoJ). Since coming back into office on December 26, 2012, Abe has been pushing for the BoJ to do whatever it takes to boost inflation to 2%. The BoJ responded by agreeing to do so next year. Kuroda was the nation’s currency chief from 1999 to 2003, and is likely to push the BoJ to move faster.

The immediate consequence of his browbeating the central bank was a 16.9% plunge in the yen since September 27. The catch is that 18% of Japan’s exports go to China, where components made in Japan are assembled into final products. That could lower the input costs to Chinese manufacturers and increase their competitiveness. Higher import prices in Japan could depress consumers' spending by lowering their purchasing power. By far the biggest catch is that Japan’s numerous governments have tried massively stimulative fiscal and monetary policies for over two decades that all obviously failed to work.

Today's Morning Briefing: Catch-22. (1) Sanity and insanity. (2) Problematic situations. (3) Suspending logic. (4) Bernanke, Yellen, and Dudley likely to prevail. (5) Draghi’s financial success fails to revive economy as reform movements falter. (6) Italy’s comedian. (7) Hollande’s policies weighing on French economy. (8) Tapping on the brakes again in China? (9) What if Abe loses his big bet on weaker yen? (More for subscribers.)

No comments: