Some tidbits from the past week or so.
- The Bank of Japan has declared it’s going to miss its 1% inflation goal, with real inflation being stuck somewhere between 0.5 – 0.8% for the past year. Troubling news for an economy already shown to be slowing and struck hard by deflationary pressure.
- The fallout from the Senkaku Islands dispute continues as Nissan and Toyota post shocking monthly declines in sales in China.
- Additional fallout from the Senkaku dispute has led to a general diversification of Japanese corporate investment from China into ASEAN economies as alternatives for FDI.
- Former Prime Minister Shinzo Abe (now president of the LDP) made another controversial visit to the Yasukuni Shrine. Probably playing to a domestic audience, but this does not help Noda’s attempts to soothe diplomatic relations with China.
In light of this sort of news it’s interesting to note the following as well:
We’re waiting on the GDP announcement for China’s 3Q growth, but the general consensus seems to be steeling for a continued slowdown in GDP growth.
We’re in for some interesting times ahead…
The Atlantic: ” The Japanese government needs to issue debt amounting to 59.1 percent of GDP; that is, for every $10 that Japan’s economy generates this year, the government will need to borrow $6.”
Whoa.
http://www.theatlantic.com/magazine/archive/2012/10/the-next-panic/309081/Report
The difference is Japan holds most of that debt internally, which is actually one of the causes of their malaise, but by the same token makes cascading, catastrophic failure less likely. And Japan’s yield curve is still the lowest in the world (30 yr at less than 2%). (and the Yen is still at the high end of longterm trading pattern, at 79 to the dollar and 103 to the Euro. ‘par’ is about 25 yen higher for each)
In other words, nobody in the world is pricing that there’s a problem, so I don’t think there’s a problem. Boom, markets.Report
So as a senior Japanese saver, I owe myself my pension? Snake eats its tail.Report
by that measure, the US debt isn’t a problem either.
Do you see the markets pricing in the Carry Trade as a problem?Report
And it isn’t in the short/medium term. (entitlements are another matter).
Carry trade was a thing in the mid 00’s when the Yen was weirdly cheap (120 to the dollar) and the Euro was getting super strong. Don’t think it’s a thing now with most of the characteristics and directions reversed. (and money just about everywhere being super cheap with current lending rates).Report
SS can be fixed by eliminating the interest deduction on second homes. Medicare is a different story (but hell, obamacare’s supposed to fixt hat).Report
I love these Asia posts. Keep them coming.Report
I wish our inflation in the US was only 1%.Report
Why?Report
Because I would prefer having my money hold it’s value instead of being worth less and less over time.Report
bu… bu… bu… what about JOBS! And GROWTH!
More seriously, “not wanting your wealth to degrade over time” is why people buy assets like houses, which tend to inflate like the general US does, because people are generally willing to pay X% of income for houses.Report
What about jobs and growth? Do employers no longer need workers when there is no inflation? If growth is only coming about because of inflation, it is illusory growth.
And we see how well buying houses worked for people who bought earlier in the decade. That really helped them hold value. To me, a house is and always will be a consumer good if it is a residence. It is only an investment if it is being rented to tenants and generating income.Report
That’s arse backwards. A house is an asset that appreciates at roughly the same speed as inflation. Makes a great inflation hedge, so long as you aren’t a blasted idiot and buy in the middle of a bubble (and housing is the bubble of last resort).
Know a friend of a friend who got rich buying in the past decade. He sold at the top, and promptly rented.Report
Do employers no longer need workers when there is no inflation?
If there is too little money chasing too few goods, it becomes more expensive to borrow to invest in the things that make jobs. Harder to borrow money to build a house (thus employing carpenters, masonry guys, electricians, roofers, etc.). Harder to borrow money to buy capital equipment. Harder to borrow money to buy that long-empty restaurant and make into a new family owned steak joint, etc.
At the outside you risk deflation, which sounds good–shit becoming cheaper–until you realize that when folks understand there’s deflation they start delaying their purchases, because they can get it for less six months from now. Then suddenly we have a surplus of goods, warehouses are full, assembly line workers and sales clerks are laid off, and they buy fewer goods, etc. etc.
We walk a fine line with inflation. Neither too much nor too little is desirable.Report
do you like business cycles? consider them necessary?Report