Chillin' out till it needs to be funded
Earlier in 2010 and 2011 wwe had warned readers that Japan should find a defender of faith for inflation as that was the only way to get out of “endemic deflation”. While the Yen had started the nineties above 100 to the Dollar, it was frequently also targeted by currency speculators “because of its large US Treasury holdings” and weak domestic demand had indeed become a side effect for most Japanese corporations with record Savings unperturbed by negative interest rates. We could thus say “We told you so” having successfully defended the Euro and Paul Krugman among others when under attack for supporting higher inflation and still pursue doggedly any inflation hawks in the US Economic fabric and those in Bigger Super Economies of the 21st Century like India and China.
However, other issues have also been raised by Shinzo Abe‘s clear diktats to Central Bankers including conservative outgoing Governor Masaaki Shirakawa and his deputies, one of whom might well take over the mantle while Abe continues as the Prime minister who opened up fiscal expansion with the BOJ agreeing to the globally inflationary but growth friendly limitless support for the Japanese Economy in a spread of Monetary Economics just recently adopted by the US Fed too, ensuring that there is no withdrawal of Economic stimulus thru printed money to the Domestic Economy till the new inflation target of 2% is achieved.
Last year’s run on US Treasuries continues meanwhile after one year of China’s reducing its holdings of US Treasuries to almost 50% from more than two thirds of its reserves and yields on the 10 yr US treasuries are close to 1.90% and still rising as US bonds exit most portfolios except that of the Japanese Government. Actually the Yen has also been unnecessarily strong for the last two decades because of Foreign holdings of JGBs as Domestic investors stay away from those and thus in the guise of markets having discounted the Abenomics announcements, the continuing wweakness of the Yen has been arrested despite the most wide possible acceptance of a weak yen strategy by BOJ earlier today. And that remains the vital cog leaving Japan susceptible to investor action that endangers its Domestic revival even as more Infrastructure spending and revival of demand follows int he wake of today’s direction turning events. If the BOJ indeed continues to buy US Treasuries in the wake of global sell off , it may yet become an interactive exercise for International investors especially those fromt he US to stop buying up the Japanese currency to unnatural strength. In the meantime the current never before levels of the Yen give an advantage to Tsunami hit Honda Toyota and other Auto manufacturers as the US Auto makers stop taking higher share of market in 2012 and the answer is not an appreciation of th eYen as US Consumers and even commentators are wont to assume, while the weaker Yen and Expansionary Economics lead Yen to its best chance back to the growth circuit
Japanese Central Bankers have indeed spoken on the need to watch the almost vertical fall of the Yen ever since it hit 86, but unfortunately the call for expansionary Economics when domestic Economy is less than a third of Japanese GDP is unlikely to pass muster unless the weakness in the currency continues