Monday, March 17, 2014

Japan Running Out of Mojo? (excerpt)

Japan’s Consumer Confidence Index jumped from 39.9 during December 2012 to 45.7 during May 2013 as the new government implemented Abenomics to boost economic growth. This index has been trending down since then, falling to 38.3 last month, the lowest reading since September 2011. The problem may be that while workers are likely to receive pay increases, they may not be sufficient to offset rising prices and April’s hike in the consumption tax.

Abenomics succeeded in depreciating the yen early last year and boosting stock prices. However, the stimulative impact of this policy approach seems to be losing its effectiveness already. That’s partly because the plunging yen boosted import prices, depressing the purchasing power of Japanese consumers and businesses. Just as troublesome is that imports continue to outpace exports.

Back in 1996, Japan’s economy was showing signs of recovering from the bursting of a major asset-price bubble in the early 1990s. After the Japanese government raised the consumption tax to 5% in April 1997, the economy sank into recession. The downturn would last for over a year and a half, enabling deflation to take root in Japan. As noted above, Japan’s government plans to raise consumption taxes in April of this year.

Today's Morning Briefing: Forward Guidance. (1) Tweaking the Fed’s forward guidance. (2) Data-dependent guidance needs new data. (3) A brief history of the Fed’s forward guidance. (4) Eeny, Meeny, Miney, Mo. (5) BIS not impressed with forward guidance tool. (6) Credibility and communication. (7) Too much information can reduce credibility. (8) Committee cacophony. (9) NZIRP is bubble-prone. (10) More known unknowns in China, Japan, and Russia. (11) Collateral damage: Copper showing China losing its shine. (12) Confidence falling in Japan. (13) Remember Sudetenland! (14) S&P forward earnings unfazed by global turmoil. (15) Deep freeze hits Q1 earnings. (16) Focus on market-weight-rated S&P 500 Retailers. (More for subscribers.)

No comments: