JPY Drops, Nikkei Pops As Japanese Trade Balance Nears Record Deficit (36th In A Row)
Another month, another colossal miss for the "waiting-for-the-j-curve" Japanese trade balance. At 1.7tn, this month's adjusted trade balance is the 2nd largest on record, and is the 36th month in a row - the worst March deficit ever. Exports missed dramatically (+1.8% vs 6.5% expected) so, so much for devaluation driving competitiveness in a globally interdependent product development cycle - nearly the lowest YoY gain in exports since Abenomics began. Imports rose more than expected (+18.1% vs 16.2%) as the devalued JPY makes living standards more difficult to maintain. The result of this dismal data - JPY weakness which can mean only one thing - a 120 point rally in the Nikkei.
Export growth is collapsing... as imports surge as a devalued JPY makes the picture for importing everything uglier and uglier... (as Goldman notes, growth in the import value of mineral fuels such as crude oil and LNG re-accelerated to +14.8% in March (February: +4.2%))
Which leaves the trade deficit near record lows for the 36th month in a row...
As we have noted previously, the J-Curve ain't coming...
Perhaps I can shed some light on Japanese Prime Minister Abe’s missing J-curve; i.e., why Japan’s trade deficit seems to be increasing rather than decreasing after massive monetary intervention to reduce the purchasing power of the yen. Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery.
Monetary debasement transfers wealth within an economy by subsidizing exports at the expense of the entire economy, but this effect is delayed as the new money works it way from first receivers of the new money to later receivers. The BOJ gives more yen to buyers using dollars, euros, and other currencies, as the article states, but this is nothing more than a gift to foreigners that is funneled through exporters. Because exporters are the first receivers of the new money, they buy resources at existing prices and make large profits. As most have noted, exporters have seen a surge in their share prices, but this is exactly what one should expect when government taxes all to give to the few.
Eventually the monetary debasement raises all costs and this initial benefit to exporters vanishes. Then the country is left with a depleted capital base and a higher price level. What a great policy!
The good news is that Japan does know how to rebuild its economy. It did it the old-fashioned way seventy years ago–hard work and savings.
And the latest joke from Asian trading floors: "when asked what he thought of the recovery, Shinzo Abe responded "Depends!""
Worst news is awesome news... well played BoJ... Of course, Abe needs that stock market higher...
- *ABE CABINET SUPPORT DROPS 6 PPTS TO 49% IN APRIL: MAINICHI POLL
As its clear the people are losing faith in his magic
And then Goldman Sachs gives up the J-Curve...
Trade balance to remain in the red, significant delay in J curve effect: We expect the trade balance to remain in the red in the long term. We see a gradual improvement over time in line with recovery in the US economy and elsewhere, but with the boost to export volumes from yen depreciation weakening and structural changes evident in imports, including higher electrical machinery imports, we believe the pace of that improvement will be far more modest than in past periods of yen weakness.
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