Saturday, May 25, 2013

Mizuho's Chief Economist Yasunari Ueno Says Abenomics Is Nothing New, "I'm Not Suffering from Amnesia..."

UK's Financial Times interviewed Yasunari Ueno, highly regarded and widely followed Chief Economist of Mizuho Securities on so-called "Abenomics".

Ueno says it's nothing new, and the risk is high that Bank of Japan cannot manage the inflation in now a very weak, fragile Japanese bond market thanks to BOJ's intervention.

A refreshing departure from the gibberish nonsense that I've been hearing and reading in Japan about "Abenomics".

FT: Why aren't you thrilled with "Abenomics"? Why are you skeptical?

Ueno: I'm not suffering from amnesia. Abenomics is kind of revival of Japanese government's economic policies. We already saw a massive expenditure from fiscal side in 1990s. As for quantitative easing by the central bank, we saw one example between 2001 and 2006. As for the so-called "growth strategy", every Japanese cabinet has made such documents, but without any strong initiatives.

FT: If Abenomics won't work, there are risks associated with it, in the unfolding of the policies. Contrary to Mr. Kuroda's intention, yield curves across the government bonds are rising. What's going on here?

Ueno: It is a malfunction of Japan's bond market. BOJ declared massive buying of JGBs (Japanese government bonds), and the market sentiment is too much dependent on BOJ's operations and actions and some voices from BOJ officials. So the market is not in good shape, very fragile, scant liquidity, high volatility. That means weak power on "buying on dips". So Japan's bond yield is going to be a little higher.

The priority there is first "higher stocks", then "weaker yen". The bottom is the level of long-term yields. So, if the higher long-term yields destroy higher stock price, then BOJ or the government is going to extinguish the fire in the bond market. However, now the stock market is firm, so no big reaction to the higher, long-term yields.

FT: Higher bond yields mean investors are positioning for inflation. But Japan has a deflation problem, doesn't it?

Ueno: Yes, in March we saw -0.5% for core CPI YoY basis. In April it will be 0.2 to 0.3%, in May it will be around flat [unchanged]. In June we are going to see 0.2 to 0.3% positive core CPI number. It will be a little shock to the JGB market. When we see the energy market movement, I confidently forecast the positive change for CPI core. However, this is kind of a supply side shock, not pulled up by demand side, stronger internal demand.

BOJ is targeting 2% within about 2 years, however it is totally impossible in this economic reality.

And if we see a higher consumption indices, then we need higher pay rise. About 5 to 6% strong wage hike is needed, however this year we are going to see about 1.8 or 1.9%. So there is a huge gap between them.

Goooood luck Japan........


Hikarius said...

"now the stock market is [good? boom?]"

What I heard is "firm". I think what he meant is the stock market is relatively solid (comparing with the JGB market).

By the way, have you read the story on Asahi Shimbun? I try hard not to laugh my head off while reading it.

arevamirpal::laprimavera said...

Thanks, Hikarius, that makes sense.

I just read your link. And that newspaper is supposed to be one of the premier national paper. Watta joke.

Hikarius said...

Actually the most funny and somehow ridiculous thing in the Asahi article is the myopic, localized and "nationalistic" notion (which is quite common in Japanese media). It's like "Son, watch out, we the Japanese become the center of the world stage again" - even though the title of the play is "The Way to Armageddon".

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