It’s a real shame that after 25 years the leadership in Japan will not give us their dreams of infinite mercantilism. The latest print for Japanese GDP was just 0.3% growth, which immediately prompted proclamations from prominent Japanese government officials as to the need for more monetary and fiscal stimulus.
Of course this is exactly what the Japanese economy has been living and struggling with for the past 25 years.
The adjustment of the economy to the resurgent Yen (AMEX:FXY) has not completed which is causing short-term imbalances in both trade and current account balances. These are not going to improve until the rest of their nuclear reactors are brought back on-line. Japan’s massive importation of oil and natural gas to power their economy is going to drain their capital stock which, right now, is heavily leveraged, albeit at much lower coupons on current and rolled-over debt than in the past. Brent crude (AMEX:BNO) prices, and the A-P Tapis and Minas crude Japan is importing, are only going to continue to rise.
Pushing for more monetary and fiscal stimulus and attempting to bring the Yen down versus the Euro (AMEX:FXE) and the U.S. Dollar won’t help them in the long run. Investment overseas by their now suddenly rich companies that have the ability to buy up distressed assets on the cheap. It is that return on invested capital that will allow Japan to continue to work off the bubble at zero-bound interest rates. Resisting the siren’s call of more monetary debasement is essential for them at this point as capital flows will support their current fiscal situation until such time as the U.S. economy truly implodes.
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