MADRID | The Corner | Will the Japanese Central Bank act again to raise inflation expectations and get inflation to reach its target of 2%? Some analysts believe the BoJ should allow the economy to overheat a little in order to promote higher inflation expectations. “Kuroda is convinced that the country will reach its inflation target of 2% in the FY2015,” experts at JP Morgan pointed out on Thursday, “but the help of the yen’s depreciation is fading since expectations of further monetary expansion are lowering too.”
SAO PAULO | By Marcus Nunes via Historinhas | This can be inferred from a speech by Rintaro Tamaki, Deputy Secretary-General and acting Chief Economist of the OECD, who for 35 years worked for Japan´s Ministry of Finance: “The chief economist of the Organization for Economic Cooperation and Development, Rintaro Tamaki, recently gave a talk that should be heard by all Japanese economists and policy makers. He observed that the aim of Japanese economic policy is still mainly about strengthening growth.”
LONDON | By Barclays analysts | The Japan macro trade has been off the radar in 2014, but that should change (for better or worse) in the coming few months. US yields have likely bottomed, while the effect of Japan’s VAT increase appearsmanageable. More important, PM Abe has unveiled more details of his 3rd Arrow (the structuralreform program), including a long-anticipated cut in the corporate tax rate.
LONDON | By Kyohei Morita and Yuichiro Nagai at Barclays | The Abe administration is currently aiming to reach a Cabinet decision on its new growth strategy and “big bone” economic and fiscal reform plans around end-June. The discussions are far-reaching, but from the perspective of market participants, we believe there are four near-term focal points: 1) corporate taxes; 2) labor market reforms; 3) reforms to the pension system, including the Government Pension Investment Fund (GPIF); and 4) special national strategy zones. Here we focus on corporate taxes, likely the only subject of concrete discussion for the markets in June.
SAO PAULO | By Benjamin Cole via Marcus Nunes’ Historinhas | One of the bromides of modern macroeconomics is that “long-term, money is neutral.” The above maxim makes sense on some levels. A nation is made rich or poor by its investment in infrastructure, education, farmland, factories, work ethics and the like. Running printing presses, per se, is meaningless.
SAO PAULO | By Marcus Nunes | The WSJ has a piece which closely reflects the consensus view on the matter: “Japan´s Sales-Tax Boost will Test Abenomics”: The tax increase is designed to pay for Japan’s ballooning social-welfare costs and to pare its huge public debt, which, at more than twice the size of the economy, is the largest among rich nations.
LONDON | By Barclays analysts | There appears to be increasing market doubt over the sustainability of the “Japan trade”. Year- to-date, the yen has rallied more than 3%, while the Nikkei is down 11%, placing it among the worst performing indices of the year. This is due in part to concerns over the impact of the forthcoming fiscal drag as the VAT hike takes effect on April 1st.
MADRID | By Luis Arroyo | Nobel laureate economist Robert Shiller discusses the issue of the so-called “animal spirits” and what should be done in order to pump trust. He uses a visit to Japan as a base to show how effective the politics by Mr. Abe were. Japan is the country that has reduced the gap with the potential GDP.
LONDON | By Michael Gavin at Barclays | The recent decline of headline and core inflation in the US and Europe has intensified interest in the economics of deflation, particularly the perceived danger that Europe may be headed for a deflationary episode. Deflation is particularly unsettling for many policymakers and market participants because of the theoretical risk that it may render monetary policy ineffective, creating a ‘liquidity trap’ from which it may be very difficult to escape.
LONDON | By Jim McCormick, Anando Maitra and Sree Kochugovindan at Barclays | Nearly a year ago to the day, the LDP and its leader, Shinzo Abe, won a landslide victory in the Japanese elections. Since then, it has been an extraordinary twelve months for Japan. GDP growth is set to be the highest of all major economies, by a good margin. Inflation and inflation expectations are at the highest levels in some time. The equity market has surged 75% since the election, and the trade-weighted yen has fallen 30%.