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 ‘deflation’
During a recent visit to the United States, the message of Japan’s prime minister Shinzo Abe to President Obama was “Japan is back!” This is Abe’s economic battle cry in his fight to end two decades of deflation, meager growth, and economic malaise. And much like Japan’s feudal lords of a bygone era, Shinzo Abe has a trusted advisor ready to lead his country into battle – a samurai, if you will. Shinzo’s samurai, to coin a phrase, is his appointee for the governor or the Bank of Japan, Haruhiko Kuroda.
Governor Kuroda’s first foray will be during this week’s policy meetings of the Bank of Japan. This week’s meetings, Kuroda’s first, will be his initial test to see if he can achieve the results that eluded his predecessor, Masaaki Shirakawa. Kuroda has assumed his own battle cry of sorts, adopting language from the European Central Bank’s Mario Draghi. “Whatever it takes!” That’s what Kuroda says he’ll do to reach a 2% inflation target within two years – a goal imposed by Abe on the central bank. Read more
On 15th February, the price of gold hit a six-month low of $1,608 per troy ounce, calling into question the precious metal’s credential as an all-weather asset class.
Contrary to widespread perception, gold has not been inflation proof. But it has been a good hedge in periods of market turmoil, when investors have been forced to flee to safe-haven assets.
As recently as last December, many institutional investors, as well as high net worth individuals, had gold allocations as high as 15% percent – 20% in India. Even after the recent rally in the equity markets, many wealth advisors still continue to favour ‘return of capital’ over ‘return on capital.’ Their rationale has more to do with the worries about the other asset classes and less to do with gold’s intrinsic merit. For gold to succeed, evidently, it is enough for other asset classes to fail. Gold does not have to succeed in its own right. Read more
The President of Federal Reserve Bank of Chicago came to speak at the CFA Society of Iowa Strategy Dinner last night and I was lucky enough to attend. Although, we did not learn anything really new from the speech, Evans nicely summarized the Fed’s motivation for implementing the unemployment and inflation thresholds that are his namesake along with the reiterating that the Fed will not remove accommodation, whether it be QE or the near zero federal funds rate too quickly. His view on the economic growth was pretty optimistic. Evans stated,
I am optimistic that we have appropriate policies in place to help the economy achieve escape velocity by 2014. So, after rising a disappointing 1-1/2 percent in 2012, real gross domestic product (GDP) should increase in the range of 2-1/2 to 3 percent this year and then grow between 3-1/2 and 4 percent in 2014, according to my forecast. This growth ought to be sufficient to bring the unemployment rate close or maybe even a little below 7 percent by the end of next year.” Read more