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World economy 13th June 2014

Japan’s “growth strategy”

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.

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World economy 2nd June 2014

Money is not long-run neutral or is the CFS’s “divisia” right?

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.

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World economy 1st April 2014

Will the Increase in the Consumption Tax Derail Abenomics?

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.

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World economy 28th March 2014

The next stage of the Japan trade

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.

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In Europe 21st March 2014

Shiller backs Abe and Roosevelt… what’s Merkel say on that?

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.

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In Europe 13th March 2014

Spain’s Warning Signs Of Japanisation- Shall We Buckle Up?

MADRID | By Julia Pastor | Amid the debate on the euro zone’s eventual japanisation due to low inflation levels, we wonder if Spain could be the first member state with severe signs of this illness. Inflation is near 0% since six months ago and markets’ expectations suggest an average price index scarcely over 1% for next five years, and under 2% in a decade. Along with Portugal, Spain is the EU economy having more price indicators’ components in red year-on-year rates, namely 40% against 20% of Europe’s average. That means that 2 out of 3 goods in Spaniards’ shopping basket are affected by deflation. Although good for the country’s competitiveness, there is a risk in the process of public as well as private debt deleveraging.

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World economy 22nd January 2014

Abenomics one year on

SAO PAOLO | By Marcus Nunes | Shinzo Abe was elected in December 2012 on a promise to revive growth and put an end to deflation. How have his promises ‘performed’ one year after taking power? The ‘performance’ of the so-called Abenomics will be illustrated by a set of charts.

Is deflation a trap Revisiting the Japanese experience

World economy 14th January 2014

Is deflation a trap? Revisiting the Japanese experience

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.

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World economy 11th December 2013

The Japan macro trade: Watch Japanese investors in 2014

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%.