Quantitative Easing Across the Pacific

Nic Crowther
Mon 03 Nov

The Japanese economy has long lost the lustre of many other shining Asian countries. Since initially surviving the great crash of the Asian Financial Crisis, the Japanese since been overtaken by its neighbours and endured almost 15 years of negative growth.

Hugh amounts of infrastructure spending occurred (the most notorious of which being the failed sea wall that was consumed by the 2012 tsunami and led to the Fukushima crisis) all aimed at improving internal consumption.

With a series of failed governments, changes of leadership, and an appearance of general lack of direction, many observers were amazed to see the return of quantitative easing (QE) to the Japanese economy via an announcement from the Bank of Japan (BoJ). A recent lift in their VAT from 5%-8% had the expected short-term impacts, with GDP slipping by 7.1% for Q2 2014.

Still, the markets seem to love all of this, as on Tuesday 4 November, as Australians ignored productivity with an afternoon off to watch The Melbourne Cup, the Nikkei hit its highest level since 2007 – up an incredible 3.5% to 16979. Whether this amazing jump can be sustained as all the mixed messages of Japan’s economic policy remains to be seen. We anticipate a correction much sooner than later.

It makes for interesting timing. This has all happened in the same week that the United States has put an end to what has been almost six years of QE following the Global Financial Crisis. These actions from both sides of the Pacific have sent the US Dollar soaring against the Yen, and left the AUD trembling in its wake.  On an afternoon where ‘Protectionist’ won The Race That Stops a Nation, our dollar slumped to USD0.8667 – it’s lowest rate in four years.

Let’s face it, Japan needs to do whatever it takes to bring its economy into growth for the first time during the 21st Century. With more than a quarter of a quadrillion Yen of foreign debt, the only way is up.

But then again, we were saying that ten years ago.