6 Sep 2013
Black swans, Japan and the BoJ
FXstreet.com (Chicago) – Ahead of leading economic index data in Japan along a coincident index and the BoJ monthly economic survey results in the country, BoJ Governor Haruhiko Kuroda clarified the institution’s stand in regards to the most recent developments and the potential decision to increase tax sales sooner than later.
When too soon is too late or how to handle black swans?
Last Tuesday, BoJ’s Kuroda press conference provided clarification in regards to the 3% sales tax hike from 5% to 8% in the country. Planned for next April 2014, better than expected results pressed for sooner action to boost expansion and the consolidation of Abenomic policies after two black swan events smashed the country – the 2008 global crisis and the 2011 Fukushima nuclear disaster. Not acting promptly could be grave for the health of the country as a loss of trust could be irreversible for the institution and the consequent drop in government bond prices would be “difficult to counter through monetary policy”. The assessment of the economic state of affairs in Japan was rather positive with performance indicating the nation is “recovering moderately”. The decision will be taken in early October shortly after quarterly tankan business surveys are released.
Flexibility with fiscal policy
Weighting in those concerned with such execution, Kuroda added that if that “makes it difficult for us to achieve our price stability target, we will take necessary measures in response”, referring to the flexibility of fiscal policy makers to respond to downside risks if the 2% target inflation rate is threatened. Results to highlight are the maintained 0.1% interest rate decision for this month and the increase in capital spending for a flat result from -3.9% prior growth.
The rest of the world
The attention remains centered around the US Federal Reserve decision to taper the bond-buying program as outperforming results may indicate a sooner than later reduction in stimulus. Although the implications of a cutback are not crystal clear, speculators, among them Kuroda, affirmed that a stronger US could have “positive effects on the global economy including emerging countries through trade transactions”. Moreover, he stated that the Syrian conflict increased risk aversion behavior which had a direct impact on the financial markets, affecting all but mostly the emerging markets that, by themselves, had performed “a bit weaker” than expected, halting the perception of the consolidation of a global recovery.
When too soon is too late or how to handle black swans?
Last Tuesday, BoJ’s Kuroda press conference provided clarification in regards to the 3% sales tax hike from 5% to 8% in the country. Planned for next April 2014, better than expected results pressed for sooner action to boost expansion and the consolidation of Abenomic policies after two black swan events smashed the country – the 2008 global crisis and the 2011 Fukushima nuclear disaster. Not acting promptly could be grave for the health of the country as a loss of trust could be irreversible for the institution and the consequent drop in government bond prices would be “difficult to counter through monetary policy”. The assessment of the economic state of affairs in Japan was rather positive with performance indicating the nation is “recovering moderately”. The decision will be taken in early October shortly after quarterly tankan business surveys are released.
Flexibility with fiscal policy
Weighting in those concerned with such execution, Kuroda added that if that “makes it difficult for us to achieve our price stability target, we will take necessary measures in response”, referring to the flexibility of fiscal policy makers to respond to downside risks if the 2% target inflation rate is threatened. Results to highlight are the maintained 0.1% interest rate decision for this month and the increase in capital spending for a flat result from -3.9% prior growth.
The rest of the world
The attention remains centered around the US Federal Reserve decision to taper the bond-buying program as outperforming results may indicate a sooner than later reduction in stimulus. Although the implications of a cutback are not crystal clear, speculators, among them Kuroda, affirmed that a stronger US could have “positive effects on the global economy including emerging countries through trade transactions”. Moreover, he stated that the Syrian conflict increased risk aversion behavior which had a direct impact on the financial markets, affecting all but mostly the emerging markets that, by themselves, had performed “a bit weaker” than expected, halting the perception of the consolidation of a global recovery.