Monday, February 03, 2014
What Have I learned from Abenomics ?
Well I have learned nothing, but the foolish people who take my predictions seriously have learned not to trust my predictions.
Noah Smith may have been one of those people. He asked what have we learned from Abenomics.
My comment
I was a naysayer. I didn't expect bad effects from Abe/Kuroda/nomics but I expected much smaller good effects. Then my fall back was to argue that QE works for Japan because the People's bank of China isn't pegging the value of the Yen. You will notice that this doesn't work. The Abe miniboom is not export led.
Japan shows a shift in expected inflation (measured by indexed bond vs nominal bon breakevens) and an increase in building starts. That is the pure expectations Krugman/Woodford/Yglesias/Avent pathway. It can work. I thought the promise to create inflation in the future (when it would no longer be needed) would never be believed by investors and, especially, builders. I was wrong.
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3 comments:
I think you're still right. I'm also with Andy Xie on this:"Abenomics is just the same old construction stimulus that the ruling party has been doing for 20 years. The Bank of Japan’s QE isn’t new. It is just bigger than before. Its achievement is to get the yen USDJPY +0.04% down 20% against the dollar, which has happened before. Even the structural-reform talk isn’t new. It happened before and mostly remained talk. So far, structural reform in Abenomics is still talk. This glaring failure has not scared away the investor community. I guess they really don’t want to stop the party and are willing to ignore anything.
Japan has a low unemployment rate. Macro stimulus is the wrong recipe. Japan’s deflation just reflects the yen level. It is not causing a downward spiral. Curing deflation is just devaluing yen. It won’t cure growth weakness.
The Abenomics bubble is likely to burst in 2014. The manifestation is for the Nikkei to come down by 30%. Japan’s fundamental problem is the rigidity of its corporate sector. Unprofitable industries keep going with cheap debt and not caring about shareholders. Its electronics industry is a good example. Globalization is making more of Japan’s industries uncompetitive. The petrochemical industry is next."
writes Edward Hugh:"My feeling is - as it has been from the start - that the experiment known as "Abenomics" could end in complete chaos. It seems clear that attitudes towards the currency and the stock market have more to do with perceptions of risk sentiment derived from the implementation of policy at the Federal Reserve then they do with the actual expansionary monetary policy being applied at the Bank of Japan.
The Nikkei 225 Stock Average rose sharply up to last May and then slumped by 20% to mid June as the Fed suggested it was about to to start tapering, then when they effectively dithered the index surged again rebounding to a six-year high by the end of the year. Now, since December 30th it is once more down 8.5%. The yen, which fell 18% against the USD in 2013 is now rising again, but it is far from clear that this will continue since movements in the currency depend so much on global risk sentiment.
Meantime the country faces a growing fiscal cliff which will be initiated in April with a rise in consumption tax from 5% to 8%. The rise will generate headline but not core inflation, which should confuse matters further. The BoJ may initiate more easing to try and drive the currency down further, but it is not clear how much effect this will have. Both the rise in consumption tax and the drop in stock values (if sustained) will be negative for domestic consumption and economic growth."
Fascinating. I didn't know that the Nikkei tanked when the Fed taper talked. I'm pretty sure that this effect can't be obtained in a standard model with rational expectations (and a unique equilibrium). The reason is that the loss to Japanese firms from tpapering through lower GDP and demand in the USA should have been more than balanced by the gain from appreciation of the dollar.
I don't see the point of the word "risk" in "risk sentimate". The investment strategy seems to be pretty much pure herding. Do what the others do (even if the others are in the USA and US-Japan trade is small compared to US+Japan GDPs).
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