12
Japan – Weak yen is no longer seen as panacea to
solve economic imbalances
In Japan, Abenomics was supposed to weaken the yen
and boost exports. The problem, however, is that
global demand is slowing and Japanese exporters have
no intention of reducing export prices denominated in
foreign currency. Instead, they used a weaker yen to
book a windfall profit. In November,
Japanese exports fell 3.3% year-on-year in yen terms ,which was the
biggest decline since Prime Minister Abe took office in
December 2012.
Japan is in a highly difficult situation. It is pretty obvious
that a weaker yen will do no good to the economy, at
least this seems also to be the conclusion according to
an increasing number of voting members at the Bank of
Japan – read the Japan Times article,
BOJ adjustments signal limits to monetary easing .The decision by the
US Federal Reserve to raise policy ratesalso reduces the
need to raise the current level of money-printing in
Japan as this may help keep the yen heavily
undervalued for a little longer.
The yen, however, may be headed for abrupt
appreciation. This will be the case if the Bank of Japan
abstains from introducing additional monetary stimulus
measures; this is simply a necessity to keep the
currency significantly undervalued. In 2016, the
yen,however, may be exposed to more appreciation
factors. This is not least the case if the financial market
moves into a risk-off environment in the first quarter,
which is part of this newsletter’s
2016 Outlook ;this
could reinforce yen repatriation. Ironically, the biggest
appreciation factor is if the Japanese economy is
responding to
Abenomics .This would leave the Bank of
Japan empty-handed when it comes to arguing for
more monetary easing; good news simply risks
becoming bad news.