The Daily Update - Japanification Concerns

In Japan, which some observers think as an image of Europe in twenty years’ time, the Bank of Japan (BoJ), is considering lengthening their forward guidance on forward rates beyond Spring 2020. Concern has been reflected due to the lack of growth through the first quarter as exports and industrial production, the big sustainable engines of growth, remained weak due to a slowing in the global economy and a sluggish China.

BOJ officials seem to think that the International Monetary Fund, IMF, outlook of a pickup in growth in the second half of the year is appropriate. This needs to happen as once again they plan to hike the consumption tax in October, this time from the current 8% up to 10%. We seem to remember back in 1997, just as the economy found some mileage then Prime Minister Hashimoto-san raised the tax from 3% to 5% and some still maintain that was the catalyst that created the so-called lost two decades, nearly three, following the bursting of the stock market bubble in December 1989.

At their April meeting, the BoJ said it will maintain the current extremely low levels of short and long interest rates as it will take an extended period of time to achieve their 2% inflation target. If you look at most forecasts Japan’s inflation rate is expected to be below 1.5% out through 2024, so they really could offer very much longer forward guidance as we end another lost decade of economic growth. Take heed President Draghi and Co.

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