It's all starting to fall apart for Japan, whose "lost decade" now appears as though it may turn into a "lost forever" and that's if QQE doesn't dead end in "failed state" status in 2018.
A rebound in inflation is nowhere in sight (even when Japan attempts to game the numbers by removing components where prices are declining) and as we saw last month, the "devalue our way to prosperity" idea isn't working out so well as trade is collapsing in the face of the global currency wars. Wage growth is of course a complete joke as we've outlined on too many occasions to count.
The yen is sitting at its strongest levels since QE was expanded two Octobers ago and stocks are down by a fifth from last year's highs. To borrow a phrase from 2 US senators discussing America's train and equip program for Syrian rebels: “Let’s not kid ourselves, that’s a joke. This is just a total failure.”
And so, as Abe and Kuroda fumble blindly into the abyss, we bring you the following commentary from Bloomberg's Mark Cudmore.
From Bloomberg
The long-term outlook for Japan, and the yen, is deteriorating significantly. The relatively rapid recent depreciation of both the dollar and the yuan is a hammer blow to a currency outlook that was already vulnerable.
- The yen has been the third-worst performing major currency in the world this month. The trouble for Japan is that the two currencies that have fallen even more are the U.S. and Hong Kong dollars, while the yuan is the fourth worst, roughly on par with the yen
- China and the U.S. account for roughly 40% of Japan’s exports. The two main economies that Japan has a trade surplus with are the U.S. and Hong Kong. Basically, the yen has started to weaken against every currency except the ones that really matter for Japan’s economy
- So even though the currency is suddenly a global underperformer after world-beating gains over the previous three months, it’s not easing Japan’s plight
- Inflation projections continue to be lowered. January’s shift to negative rates not only appears to be not helping, it seems to be spectacularly back-firing. Today, Japan Post, one of the country’s largest employers, announced they it’s refusing to raise wages specifically because of the harmful impact of negative rates
- And now we’re again in a world of rising commodity prices with Japan being a major commodity importer. If the recent rally sustains, you can add a negative terms-of-trade shock to Japan’s difficulties
- The dollar’s travails may disguise the yen’s weakness for now, but the recent depreciation of the yen is likely to be the start of a trend, one that is likely to continue long after the dollar plunge stops