We've talk about this here before, primarily focusing the the so-called three arrow of Abenomics and how it was misguided, misordered and worst of all, most likely untenable.

- FirstPoint Japan Editor

By Nathan Lewis, Contributor
Forbes Magazine

The administration of Shinzo Abe in Japan just approved a rise in the consumption tax (national sales tax) to 8% in April 2014, from 5%. This opens the door for another rise to 10% in 2015. At the same time, the Abe administration plans to spend ¥5 trillion on “stimulus” to offset the negative economic effects of the tax.

I’ve described a typical path of decline as a combination of “stimulus” and “austerity.” The “stimulus” mostly means spending money, or some kind of “easy money” policy. The “austerity” is some kind of tax hike. Put together, they add up to higher taxes, a moribund economy, more demands on the government as the private sector stumbles, more reliance by the government on distributing money as a way of bolstering political support, worsening finances, more waste, and a depreciating currency.
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This is completely contrary to the Magic Formula of Low Taxes, Stable Money — the formula that Japan itself used to grow wealthy during the 1950s and 1960s, and indeed in the 1870-1914 period as well.
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Most of the focus on “Abe-nomics” has been on the very aggressive monetary expansion being conducted by the Bank of Japan. To some degree this is warranted: the average yen exchange value over the past twenty years is about 120/dollar. However, once that point is reached … what then? I suspect that, soon, it will degenerate into not much more than a way of financing the flood of JGBs that still pours forth.

I think most people understand now that the “stimulus” spending isn’t really about Keynesian notions anymore. Rather, it has devolved into the simple purchasing of political support. Perhaps it was never really more than that, but any other justifications have worn too thin to be credible.
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The spending was deemed necessary to preserve political support. When even that didn’t work, they spent more on the military to suppress revolt and revolution. As the private sector economy crumbled under ever-higher taxes, and successive currency devaluations, the king was not so popular anymore. His ministers feared that cutting off payments to nobles and other cronies might erode their base so much that the dynasty could crumble.
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How much is ¥5 trillion in “stimulus”? It is more than half the total annual revenue of the corporate income tax, including prefectural and local taxes (about ¥9 trillion), or the projected amount of revenue expected to be generated by the increase in consumption taxes (about ¥6 trillion) — which won’t actually appear in any case.

What if, instead of “stimulating” the economy by throwing money down a hole to appease cronies, you reduced tax rates instead? It might be popular. But, they never think of that.

Nothing good is happening in Japan. Not much is likely to happen, until sometime after the present dingdongs reduce the economy to smoldering ruin.

If you've been attention lately you may have noticed that we've been in the process of completely rebooting FirstPoint Japan.

We expect the full reboot to be completed by October 1st.

Now, many have asked, "Why are you rebooting FirstPoint Japan and in what direction are you taking it?"

The answer is this: FirstPoint Japan is being taken back to its original direction which was and is to serve as the first and only English-language portal that helps you Accelerate Your Japanese Business With Expert Advice™. 

Ultimately, FirstPoint Japan™ is to be the place Where Japanese Business Begins™.

Specifically this means several things:
1. We will focus only on business related themes. Very rarely will consumer themes (e.g., what's the "hottest bar" or "best night spot") or "hey, isn't Japan weird?" themes be discussed unless such information is very relevant and would be of interest to our readers whereby they could better understand the Japan marketplace or cultural expectations.

2. The core readership for FirstPoint Japan is primarily Gaishikei (foreign firms) either entering the Japanese market, building out existing operations, accelerating growth, maintaining themselves in a sustaining phase or rebooting.

3. An additional target readership is (primarily) Japanese-language bilinguals (i.e., people of any nationality or ethnicity who are bilingual with one of their business level languages being Japanese) who are working for or would like to work for a gaishikei firm in Japan.

4. Given that Japanese firms are moving overseas and investing again in such operations again, another target readership is foreign individuals (non-Japanese or overseas Japanese) who are interested in working for a Japanese firm in a local market. For instance, such as a local person working for or interested in working for a Japanese firm like Honda in Vietnam.

5. The hottest topics previously as well as now include market entry and company build-outs. This centers much attention on issues such as hiring and the use of third party agency recruiters. Previously we maintained a large reviews database of "good eggs", "neutrals" and "bad eggs" recruiting agencies.

However, since the industry is so opaque and "rough and tumble" (to put it mildly) we found ourselves spending an inordinate amount of time maintaining reviews that, for the most part, were just "bad egg" recruiting firms which was just a waste of everyone's time.

We are now reversing the model. 

This means that now everything is considered and deemed suspect unless it is on FirstPoint Japan. We will be talking to, reviewing and placing on our site recruiting firms and other vendors with whom there is some level of trust, ethics and professionalism.


By the same token, any vendor that isn't on this site you can approach at your own risk since we'll consider them "radioactive". 


The list will start out small, it may even remain small, but rest assured we do the best we can to vet the lists and collect feedback on the firms listed.

6. The vendor directory will include recruiting firms, training and coaching firms, paralegals and lawyers (incorporation paperwork, IP issues, visa issues and so on), accountants and CPA's, HR consultants, translators, interpreters and so on.

We have a lot planned so we hope that you'll check back in frequently or if you'd like get the FirstPoint Japan Newsletter delivered straight to your inbox click on the button below.

Sincerely yours,

Publisher
FirstPoint Japan

By Yoshito Hori
President and Founder, GLOBIS

I attend lots of conferences. Recently I spoke at the Milken Institute Global Conference in Los Angeles and the World Economic Forum on East Asia in Naypyidaw, Myanmar.

At both events, I sensed how interested the international community is in Japan’s ongoing economic recovery—and how much they want it to succeed. Of course, the man behind the long-awaited upturn in Japan’s fortunes is Shinzo Abe, prime minister since the end of December last year.

From mid-November, when Abe launched his election campaign, he was clear about what he wanted to do: to change the whole “economic landscape” and end two decades of deflation and stagnation.

Even before he won, Abe’s platform was bold enough to get the markets moving. The day the election was called, the stock market embarked on a multi-month rise of over 60%, and the yen a 25% fall. (And those numbers are despite a hefty correction in May!) The real estate market also rose, unemployment fell and GDP growth ticked up.

Business sentiment is bullish too. In May, car company Toyota, a bellwether for Japanese industry, announced a near tripling of net profit to ¥1.3 trillion (US$13 billion). For this year, it’s forecasting profit growth of 36%, due partly to the tailwind of the weak yen.

The media has dubbed Abe’s policy package “Abenomics.” It’s a catchy phrase, but—what does it actually mean? Let me take a stab at explaining.

Abenomics consists of three core elements, nicknamed the “three arrows.”

The first arrow is an aggressive monetary policy. Abe appointed Haruhiko Kuroda, former president of the Asian Development Bank, as governor of the Bank of Japan in March. Kuroda has set a target of achieving 2% inflation and doubling the money supply within two years.

Abe’s second arrow is a proactive fiscal policy, consisting of a ¥10 trillion (US$100 billion) public works package.

Meanwhile, the third arrow is a growth strategy. Structural reforms in Abe’s sights include everything from increasing women’s share of leadership positions to 30% by 2020 to joining the Trans-Pacific Partnership (TPP), a 12-country free-trade agreement that should drive trade liberalization and deregulation inside Japan.

Far from frightening the electorate with this flurry of policies, Abe has maintained a support rate of around 70%, an astonishingly high level. (By contrast Barrack Obama stands at a lowly 45%!) Anyone who’s visited Japan since Abe’s election can sense that “change is in the air.” I genuinely believe that the mindset of the Japanese people is becoming more positive.

As well being the dean of a business school, I chair a venture capital fund. That gives me a ringside seat on the Japanese economy. “Animal spirits” are very much in evidence. We’ve done two IPOs for Internet-related companies this year. In both cases the price tripled or quadrupled on the first day of trading. Japanese investors are also lining up to invest in our fund, where previously 80% of our money came from non-Japanese investors.

Japan's benchmark Nikkei 225 trimmed its losses after plunging as much as 6 percent on Thursday in a vicious sell-off after the yen rallied over 1 percent against the greenback.

Uncertainty over central banks rolling back stimulus saw the dollar/yen drop below the key 95-handle, hitting a new 10-week low. The Nikkei index is now down 21 percent from last month's five-and-a-half-year high of 15,942, placing the benchmark index firmly back in bear market territory.

Elsewhere in Asia, Chinese markets experienced a bout of heavy selling with theShanghai Composite down over 3 percent after being closed since last week. Seoul shares fell over 1 percent fell to a new seven-week low and Australia's S&P ASX 200 hit a fresh five-and-a-half-month low.


Markets in emerging Asia also extended losses as capital flows continue to exit emerging market equities. Philippine's benchmark index slumped 4 percent and Indonesia's Jakarta Composite fell 2 percent

Central Bank Jitters

Nagging worries about the Federal Reserve tapering its bond-buying program and disappointment from the Bank of Japan's policy inaction at its Tuesday meeting have roiled global equity markets in recent sessions, leading the Dow Jones Industrial Average to drop for a third session in a row on Wednesday.

"We are seeing the first signs of a lack of confidence in the ability of central banks to control the interest rates, to stimulate inflation, and real GDP [gross domestic product] growth rates," said Viktor Shvets, head of strategy research, Asia, at Macquarie.

By HIROKO TABUCHI
Published: May 22, 2013

TOKYO — The Bank of Japan stood pat on monetary policy Wednesday amid market jitters over volatility in bond markets, which has threatened to undermine the country’s battle to end deflation and stimulate growth in the giant economy.

In a unanimous vote, the bank’s board stuck to its strategy of expanding the monetary base at an annual pace of 60 trillion yen to 70 trillion yen, or $585 billion to $682 billion, through purchases of government bonds, commercial debt and other assets. Those moves pump money into the economy.

After the central bank’s meeting last month, it unleashed what analysts have dubbed a “shock-and-awe” monetary policy, a sea change for a bank that had come to be known in recent years for its caution and conservatism.

Under its new governor, Haruhiko Kuroda, the Bank of Japan has gone all-out to fight deflation. Declaring he would do “whatever it takes” to combat falling prices, Mr. Kuroda last month announced that the bank would seek to double Japan’s monetary base, as well as the bank’s holdings of Japanese government bonds, by the end of 2014. The aim of such a policy is to keep interest rates low, prompting consumers to spend and businesses to invest in growth and jobs.

In recent days, however, worries have grown about rising interest rates in the government bond market, which could threaten Japan’s monetary policy. Japan is vulnerable to rising borrowing costs because of its high public debt, which is twice the size of its economy. Bonds are also the main financial asset held by banks, pension funds and insurance companies, making a surge in debt yields perilous. The biggest concern for the central bank is volatility in the bond market, where yields are still above levels marked before its meeting last month, Cameron Umetsu, a strategist at UBS, said in a note published ahead of the decision Wednesday.

“This can be viewed as one of the ‘unintended effects,’ which, if sustained, could dilute the effectiveness of the new quantitative and qualitative easing framework,” he said.

The scale of Japan’s quantitative easing is striking. Assuming that the Japanese economy grows by 2 percent a year, the Bank of Japan would expand its assets to just under 60 percent of the country’s gross domestic product, according to estimates from CLSA Asia-Pacific Markets. The U.S. Federal Reserve’s assets, which now total about 20 percent of the American economy, and the European Central Bank’s assets, which come to about 28 percent of the euro zone’s G.D.P., pale in comparison.

Japan stands out in another important way. Under Prime Minister Shinzo Abe, who took office in December and has been the main champion of the bank’s new audacity, Japan is coupling its monetary push with heavy government spending, contrary to calls for austerity in the United States and Europe.

Author: Edward Hugh

The future never resembles the past – as we well know. But, generally speaking, our imagination and our knowledge are too weak to tell us what particular changes to expect. We do not know what the future holds. Nevertheless, as living and moving beings, we are forced to act. – John Maynard Keynes

Discussions of the population problem have always had the capacity to stir up public sentiment much more than most other problems.
- Gunnar Myrdal

Last Thursday the yen broke through the psychological threshold of 100 to the US dollar. On Friday the slide continued (see chart), even dropping very close to 102 to the USD at one point before strengthening slightly on the run in to the G7 finance ministers meeting.  

The ostensible source of the sudden shift was a news release from the Japanese Ministry of Finance detailing the fact that Japanese investors bought a net total of 514 billion yen ($5.2 billion) in foreign bonds during the two weeks to May 3. Speculation had been rife that Japanese money funds would start to respond to continuing yen weakness and low Japanese yields by investing abroad. It is still far from clear that this is really going to happen in the short term, but nonetheless the news was sufficient to spark bets on more yen weakness.

Naturally the fall has drawn comment, especially during the run up to last weekend’s G7 meeting. US Treasury Secretary Jack Lew told CNBC that while Japan had “growth issues” that needed to be dealt with its attempts to stimulate its economy needed to stay within the bounds of international agreements to avoid competitive devaluations.”I’m just going to refer back to the ground rules and the fact that we’ve made clear that we’ll keep an eye on that,” he said in a comment that was widely seen as drawing a red line in the sand.

But really, what else do external observers expect? On 4 April Bank of Japan governor Haruhiko Kuroda announced he was going to increase the money base by 1% of GDP per month for the next two years. That is to say Japan’s monetary expansion will be incremental and continuous. Kuroda has even stated he will continue to increase the money base beyond the initial 24 months if the targeted inflation doesn’t come. It was always clear that the country was going to have a difficult time trying to generate inflation and that one of the knock-on consequences would be to continually weaken the yen. So you can’t realistically expect him to turn round and say now, “sorry, we didn’t know it would offend you so,  I’m cancelling the policy”. Anyway, that move would throw financial markets straight into turmoil. Didn’t they understand what they were signing up to when they accepted “Abenomics” at the last meeting?

Obviously there is still a considerable amount of confusion around about what exactly Japan’s problem is, and what the policy is trying to achieve. I have tried to examine the more theoretical background to the problem in my  A-b-e of economics post, but looking through the comments to that piece I realised that I was very tightly focused on one, examining only one aspect of what has come to be known as Abenomics, the inflation targeting component and its theoretical justification. Since ideas about what exactly it is the Japanese government is trying to achieve seem to be many and various, I thought it might be worth coming back and taking a second look at the experiment.

Three Arrows Into The Sunset

The aim of Abenomics is obviously to shake Japan out of its deflationary lethargy and return the country’s economy to a more pronounced growth path. In order to achieve this Japan’s Prime Minister has notoriously identified three policy arrows, or transmission mechanisms:

1) Aggressive monetary easing

2) Strong fiscal stimulus

3) An extensive programme of growth enhancing structural reforms

Achieving the inflation target is effectively the key objective of the first arrow, and weakening the yen is basically the transmission mechanism which achieves the objective. In fact while we have heard a good deal concerning the first two arrows, there is still relatively little on the table regarding the third one, as some commentators have started to wryly note.

Japanese yen's plunge vs. the dollar makes its exports cheaper and its companies more competitive. G7 finance ministers will focus on the Japanese yen at talks in the UK this weekend.  

By Martin Benedyk and Pan Pylas

Financial leaders from the world's top seven developed economies are gathering in the U.K. to discuss how to shore up the global recovery just as the stimulus measures of one its members,Japan, has caused its currency to take a dramatic slide.

Supporting the global economy and the role of central banks are set to be the key points of this weekend's discussions among financial ministers and officials from the Group of Seven countries — the U.S., Germany, Japan, the U.K, Italy, France and Canada. But attention will also turn the financial markets, which on Friday were dominated by developments surrounding the yen and the Bank of Japan's super-aggressive monetary policy.

The dollar breached the 100 yen mark late Thursday — the first time in a little over four years. Over the past few months, the yen has dropped sharply as the new government in Japan tries to bring an end to the country's two-decade stagnation.

Japan's central bank has been pumping money into the economy in the hope of stoking inflation — the country has suffered from falling prices for much of the past 20 years, which has hit company profits and halted growth. One consequence of the new inflationary approach has been the sharp fall in the value of the yen against other countries' currencies.

So far there's been a certain amount of support for Japan's economic gamble — even though the yen's decline makes the exports of other countries more expensive.

That's led many in the markets to conclude that the Japanese monetary authorities are actually targeting the exchange rate, a charge officials in the country have consistently denied.

Nevertheless, talk of a currency war — where countries use their exchange rates as an economic weapon — has not died down. If other countries respond to the falling yen by debasing their currencies, Japan will be back at square one and the world economy could suffer.