Much has been made throughout 2013 about the three “arrows” of Japanese Prime Minister Shinzo Abe. While this deflation-fighting plan of monetary loosening, fiscal stimulus, and structural reforms has been broadly successful, I believe it will be the strength or weakness of the yen that will determine whether Japan’s economy emerges convincingly from its deflationary period in 2014.
Posts tagged ‘Abenomics’
For those involved in trading the fixed income markets, August is usually one of the more mundane months. Issuance of new corporate debt slows down significantly since many global investment professionals are on vacation, forced two-week leaves, or holidays, which results in liquidity that is much more challenging. But unlike past years, we’re entering into a September time frame that is poised to be anything but boring, thus causing a likely increase in volatility. So just like the coming attractions at your local movie theater, this is what we have to look forward to in the month of September:
Specific events and their release date:
- “The Last Picture Show” (September 6) – On this Friday, the final major piece of the employment puzzle, the August non-farm payrolls, will be released to the market. This will either confirm the prevailing wisdom regarding the underlying strength of the U.S. economy and the likelihood of tapering of the Fed’s quantitative easing program, or it will provide a difficult conflicting perspective only days before the FOMC meeting. Read more
You may have noticed over the past several weeks that in addition to the great economic insights posts here on the Institutional Investor section of The Principal Blog, there have been some guest contributors. Several investment professionals from Principal Global Fixed Income have been writing posts that delve into their areas of expertise. You’ve seen posts on managing volatility and tail risk from Derek White, the head of risk management. You’ve read about bank loan strategies from Mark Cernicky, product specialist. You’ve learned about yields on Japanese government bonds from our global strategist, Seema Shah. And you’ve read about 10 concrete concepts to researching high yield from Phelps Hoyt, our head of high yield research.
I’m delighted to announce that because of the positive response we’ve received on the fixed income blog posts, we’ll be expanding our Institutional Investor section to include regular posts from the fixed income team! Read more
In this week’s Economic Commentary, we discussed the importance of the concept of “three arrows” in the economic policies of Japan’s Prime Minister Shinzo Abe. Definitely check out the full piece, but here’s a quick summary. In the 1500s, as the legend has it, a Japanese nobleman named Mori Motonari wanted to demonstrate to his three sons the strength that they had together, but lacked individually. He gave each son an arrow and told them to break it. Very easily, each son snapped the arrow. Then he gave each son three arrows and told them to break the bundle at once. They couldn’t because three arrows were too strong.
Mori-san hailed from the same prefecture that Prime Minister Abe comes from, so it’s fitting that Abe picked up the idea of three arrows when spelling out his economic policies meant to lift Japan from decades of deflation and economic stagnation. Abe’s three arrows are 1)easy monetary policy, 2)increased government spending, and 3)increased efficiency through economic reform. Read more
In the last few months, the world has gone crazy for “Abenomics” – Japan’s hopeful escape route out of its two “lost decades.” It’s the aggressive monetary easing from the Bank of Japan that has produced the most significant reaction so far. The central bank has adopted a new inflation target of 2% to be achieved within two years, and to hit this target, the BoJ will double the size of the monetary base by the end of 2014, mainly through increased purchases of Japanese government bonds (JGB).
To put the BOJ’s quantitative easing in context: the policy measures will produce a massive expansion of the balance sheet to 60% of GDP by 2014. By contrast, the Fed’s balance sheet is unlikely to grow to more than 30% of GDP. Read more