Ask any “economist” and they will tell you that one of the best ways to create economic growth is to devalue a currency to boost exports which in turn will increase profits and incomes.
Moreover, they will tell you, that a single QE program equal to 24% of a country’s GDP would induce a rip-roaring period of economic growth.
Japan has proven this false. All of the benefits (higher stock market, faster GDP growth, higher corporate profits, increased exports) lasted a total of six months. The negatives (higher inflation, higher costs of living, greater misery, lower household spending, economic slowdown, etc.) are proving to last years.
The situation has not resulted in any significant political fall-out for Abe domestically because Japan is a very egalitarian country. It’s not even in the top 15 countries for highest density of millionaires. And it has fewer billionaires than Taiwan, despite have more than FIVE times the population.
So while, Shinzo Abe’s Abenomics has made the rich richer, because they are few and far between, there hasn’t been the same political fall-out as we’ve seen in Europe and the US.
This was not the case internationally. The Bank of Japan’s QE program kicked off a new era of Central Banking in which currency wars were far more aggressive. Up until that point, the competitive devaluation that took place was relatively minor and sometimes even coordinated (the Fed’s QE 2 and QE 3 were backdoor bailouts for European banks).
The Bank of Japan’s QE program changed this. China is Japan’s single largest export market accounting for 22% of total imports. However, when you include the rest of Asia, you’re talking about 40% of Japan’s imports coming from countries that were directly impacted by Japan’s Yen collapse. All of these countries saw their profit margins collapse in any form of trade with Japan.
Moreover, that 37% Yen collapse also demolished the competitiveness of any Asian company that was trying to compete with a Japanese counterpart for market share. Small wonder that a few months after the Bank of Japan announced its QE program, South Korean Finance Minister Hyun Oh Seok stated that Abenomics was a bigger threat to South Korea than North Korea’s nuclear missile program. The below chart showing the South Korean won/ Japanese Yen pair tells the whole story.
In the simplest of terms, Abenomics was a form of economic warfare. It marked a transition in global Central Banking policy from an era of coordination to an era in which it is each country/ Central Bank for itself.
This was the beginning of the trend that has now culminated in the Swiss National Bank abandoning the 1.2 Franc/ Euro peg and which will see increased conflict between Central Banks going forward.
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