Tuesday, April 1, 2014

Japan Is Doing It Again (excerpt)

There’s a good chance that the Japanese government is about to repeat a rookie mistake that was made back in April 1997, when the sales tax was raised from 3% to 5%. Consumer spending took a dive. Today, the government is doing it again, raising the tax from 5% to 8%.

That tax hike will hit just as Abenomics seems to be losing its mojo. Household spending dropped 2.5% y/y during February. Housing starts are down 12.9% over the past two months through February. Industrial production, which rose 10.3% y/y through January--partly on expectations that consumer spending might soar before the tax hike--dropped 2.3% m/m in February.

On April 4 last year, the BOJ announced a plan to double the monetary base within two years: “Under this guideline, the monetary base--whose amount outstanding was 138 trillion yen at end-2012--is expected to reach 200 trillion yen at end-2013 and 270 trillion yen at end-2014.” In February, it was 210 trillion yen, suggesting a 29% increase by the end of the year. Yet, as I’ve been noting recently, there are mounting signs that this monetary “arrow” of Abenomics has been missing its mark.

Today's Morning Briefing: Rookie Mistakes. (1) The bears made a rookie mistake. (2) QE has been tapered, not terminated. (3) Thanks again, Fairy Godmother! (4) Yellen and Reagan. (5) Unemployment gets personal for Yellen. (6) Did Yellen make a mistake at her first press conference? (7) Putting more weight on wage inflation. (8) Draghi’s problem is strong euro and low inflation. (9) ECB has to stop the talk, and walk the walk. (10) Repeating a rookie mistake in Japan. (11) Bad loans in China weigh on Financials sector. (12) A Tech bubble made in China. (More for subscribers.)

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