Blue Point Trading - Is Abenomics working?


Is Abenomics working? Japan’s inflation accelerated in April to a 23-year high of 3.2%, while industrial output fell -2.5% MoM and household spending fell 4.6% YoY after a sales-tax increase. Adding to inflation is what the BOJ has been trying to do, for the past year, with the three arrows of the Abenomics plan. But this is supposed to be accompanied by stronger economic growth.

In the mean time the wage gains are lagging inflation. Among the 92 percent of companies that plan to boost overall pay in the fiscal year that started last month, only 47 percent see base wages increasing, according to a draft of a trade ministry survey seen by Bloomberg News.

The economy is forecast to shrink an annualized 3.4% this quarter after 5.9% growth in the first three months of the year. But these rising prices and stagnant wages are cutting into household budgets as Prime Minister Shinzo Abe seeks to navigate the aftermath of the 3 percentage point tax levy rise.

Economists see inflation moderating in 2014 and predict the central bank will be able to add stimulus later this year to achieve its 2% price goal, which strips out the impact of the tax rise. Some are not buying this. Barclays see no further BOJ easing in 2014. So what does this mean for the Yen?

If the BOJ does not ease, the Yen could strengthen, and send the Japanese economy back into stagnation. This story is interesting as it reflects what happens when central banks play the stimulus game, in an economic environmental structure where there is an ever increasing centralization of money via leverage. The US is playing a similar central bank game. The results are that, wages go down while prices go up (making inflation look more tame than it really is), leading to a real standard of living decrease and stagnant economic growthclick here to see this effect in the US, using the Big Mac indicator.

Blue Point Trading, William Thompson