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LIST  December 2013

LIST December 2013

Subject:

Re: Inflation reading--There is no inflation, and there is no deflation despite the urban legend to the contrary

From:

Alexander Arthur <[log in to unmask]>

Reply-To:

NBR's Japan Forum <[log in to unmask]>

Date:

Wed, 4 Dec 2013 23:19:08 -0500

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text/plain

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text/plain (61 lines)

Comment on Courtis, Smitka, Dodson:

The yen, in trade-weighted, real terms, was not particularly high at 75. Just prior to the Abe announcement of his candidacy for prime minister, the currency was at its long-time average.

However, the US, UK, and European Central Bank had been pursuing very aggressive monetary expansions that devalued their currencies. Shortening the time perspective to the years since, say, 2007, the yen was quite strong when Mr. Abe announced his policies. The BOJ's adoption of aggressive QE brought the yen back into balance. Long-term interest rates and the stock market also reacted strongly and persistently. The consumer price index, minus those pesky energy prices and food, has been rising since early 2013. As I said earlier, this is a real price level increase and not driven by energy prices, unlike 2006 when the BOJ prematurely ended its QE policy. And it has been proceeding for about eight months.

The key exchange rate to look at is not the nominal rate, but the real (price adjusted) one.Inflation will appreciate the nominal rate, but not necessarily the real yen.

Industrial production and exports are now beginning to respond, on schedule.

I am mildly surprised at how well the textbook process is working.

Arthur Alexander



On Dec 4, 2013, at 3:32 PM, Chris Dodson wrote:

I share Mr. Courtis's skepticism re: the Third Arrow but I ask him and the other Forum members: Was 75 yen per Dollar an appropriate rate?  If the BoJ does manage to get prices rising again won't that strengthen the Yen?  How can the goals of Abenomics be both a weaker Yen and inflation?
-----Original Message-----
From: Ken Courtis <[log in to unmask]>
To: LIST <[log in to unmask]>
Sent: Wed, Dec 4, 2013 4:28 am
Subject: [NBR's_Japan_Forum] Inflation reading--There is no inflation, and there is no deflation despite the urban legend to the contrary

The average rate of price changes in Japan over the past 20 yrs has been -0.1%.  This is hardly the crippling deflation which the now completely domesticated Bank of Japan has been charged to eradicate by the AbeAso government.  Similarly, as Mike points out, despite the trumpeting of the successful 'progress' in moving inflation up to 2%, there is nothing very clear in the numbers to support government claims to success.  In the latest monthly cpi numbers, indicating a 0.9% increase in prices, almost 0.7% of that came from the rising cost of imported energy. As energy prices on the world market have been weak, that increase is due entirely -and then some --to the AbeAso devaluation strategy.  In the previous read of 0.7%, the increase was entirely due to higher energy import costs. 

Let's face it, the 'new' economic policies of the LDP are the same as the 'old' economic policies of the LDP --that is surging deficit spending -with the deficit to hit 10.2% of GDP for FY 2013--, and devaluation in a desperate attempt to increase exports.  

The AbeAso 3 arrows seem aimed directly at the pocket book of working people.  Devaluation is increasing the cost of daily necessities, energy, imported food, etc.  It also will make retirement abroad more expensive, and so less attractive as an option for retirees.  

Increased consumption tax is socially regressive; mean while the coming corporate tax cut favours companies which already are swimming in cash, and remain reluctant to invest.  If there actually is inflation, that will increase costs still further for working people.  As for the third arrow, which LDP spokespeople seem constantly to mention labour reform, what that really means is a larger portion of the population working on part-time, and short-term contracts.  

It has been interesting that in the mass buildup of opposition to the Secrecy law the  government has just forced through the Diet, there has been increasingly focus in demonstrators on the retrograde social policies of the AbeAso government.

Kenneth Courtis
On 2/12/2013 5:37 AM, Smitka, Mike wrote:
> I've seen headlines trumpeting the reversal of deflation in Japan. I don't see that in the data  the increase in energy and import prices is a one-time effect, and there's no evidence that this is feeding into other sectors. In particular, until wages start going up, service prices won't and Japan's is a service economy.
> 
> For details see a post to the New Japan Forum blog that I set up when the future of this Forum was in doubt at http://newjapanforum.wordpress.com. I've mirrored this at http://japanandeconomics.blogspot.com.
> 
> mike smitka
> 
> 
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