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Abenomics One Year Later

Tyler Durden's picture




 

One year later and due mainly to the fact the Japanese stock market has risen an astounding 70% year-over-year, talking-heads, politicians, and central bankers proclaim Abe's trip into the monetary policy black hole as a success (it would seem on that basis that the head of Venezuela's "central bank" deserves a Nobel prize). Abe has managed to devalue his nation's currency by 25.5% against the USD in that time and the price of Japanese government bonds (despite some early teething trouble with the government's repressive activity) is practically unchanged up 0.75% on the year. But away from the 'market', Job creation remains stifled, inflation is rising (but thanks to import prices) and wages languish down 0.9% as the trade balance is collapsing.

 

Tonight provided another example of Abenomics failure to spur real growth... Jobs-to-Applicants ratio rose at the slowest pace since Abe started and missed expectations by the most in a year...

 

One thing is for sure - dueling QEs between Japan and the USA make for highly correlated FX and equity market co-movements...

 

Still believe its all about the fundamentals... and not just a marginally levered carry trade's flows?

 

As FT's Gavyn Davies notes,

A year later, some progress has been made, but crucial issues have been ducked and much greater challenges lie ahead.

 

The new administration under Mr Abe immediately fired the first and easiest of his three “arrows” (see David Pilling), a dramatic expansion in the BoJ balance sheet that will be maintained until inflation reaches 2 per cent. The second arrow, a temporary fiscal support programme, has also been implemented.

 

The third arrow, structural reform, has not even been removed from its quiver. And by far the most difficult task of all, now being termed the fourth arrow, stretches far into the future. That arrow is the tax increase needed to attain long term fiscal sustainability.

 

...the rise in the Nikkei has had positive wealth effects on consumption, so the central bank can claim some of the credit for the recovery.

 

...

 

More important for the long term strategy, inflation has broken into positive territory after many years below zero. Unfortunately, much of this change has been due to the rise in import prices, which will be a one-off boost unless wages rise in response, which they are not yet doing. Core inflation is barely at zero.

 

...

 

Without significant structural reforms, the markets may focus their attention back onto the sustainability of fiscal policy, which is very far from being fully addressed. In fact, when combined with the ageing of the population, this is by a long distance the most intractable problem which Japan faces.

 

...

 

The great unknown for Mr Abe and his successors is whether this fiscal tightening can be accomplished without tipping the economy back into recession. If not, the future may eventually hold further monetisation of the debt, with an even bigger devaluation and much higher inflation. Mr Abe cannot continue to rely on only one of his three arrows if he wants Japan to avoid that fate.

 

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Mon, 10/28/2013 - 22:31 | 4100049 NoDebt
NoDebt's picture

At some point I think everyone will understand what I think has been clear for at least several years now:  Monetary expansion IS the structural reform.  There is nothing else coming.  Not in Japan, not in the US, not in Europe.

Tue, 10/29/2013 - 00:03 | 4100300 remain calm
remain calm's picture

Ben Bernake jerks off onto pictures of Kuroda

Mon, 10/28/2013 - 22:32 | 4100054 tankster
tankster's picture

Up 70%, even with a 25% haircut? Wish I could say that about this past year...

Mon, 10/28/2013 - 22:53 | 4100121 NIHILIST CIPHER
NIHILIST CIPHER's picture

I may have lost count but aren't they on QE9 in Japan? Looks like we could be in this printing hell for a long time to come if JPY is doing so well. 

Tue, 10/29/2013 - 01:30 | 4100418 TumblingDice
TumblingDice's picture

At some point counting it becomes demoralizing, hence this practice stops at around QE2. Better to measure it not by count but by flow anyways.

Tue, 10/29/2013 - 01:56 | 4100440 lewy14
lewy14's picture

No, not flow, but delta flow.

Because LSAP flow has been constant lately, monetary policy is currently neutral.

Tue, 10/29/2013 - 08:19 | 4100823 TumblingDice
TumblingDice's picture

Delta flow goes in the news but flow gets into the 'markets.'

Tue, 10/29/2013 - 01:59 | 4100444 AldousHuxley
AldousHuxley's picture

QE9000

 

QE 9 was too soft. Bernanke showed the Japanese how a QE is done by tripling Fed balancesheet.

Abe....just needed to copy

Tue, 10/29/2013 - 00:39 | 4100367 NOZZLE
NOZZLE's picture

I'm troubled by the absence of punishment dealt out by the bond vigs. The value of the Yen is 25 less compared to the Dollah so I'm being repaid with Yen worth less than what the bonds were priced at when I bought them but the market is saying give me moar of that crap paper, WTF. The Jap paper is being taken by buy back bidders backstopped by BOJ to create the illusion of a real market.

Tue, 10/29/2013 - 00:50 | 4100381 chump666
chump666's picture

It's a dance of death

"Emperor, your sword won't help you out Sceptre and crown are worthless here I've taken you by the hand For you must come to my dance"

Goodluck Japan, your experiment of holding back the forces of inevitability will be your doom. 

And ours...

Tue, 10/29/2013 - 01:08 | 4100400 ebworthen
ebworthen's picture

70% rise in the stock markets? 

Couldn't possibly be a bubble, it's the 70% rise in production, employment, and wages.

Wait...

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