Today’s winner is Michael Block of Phoenix Partners, who has a great rant on Japanese economic policy. In particular, he goes off on the Japanese economic minister who set a price target ont he Nikkei, a move that we think is genius, but which we understand to be very bizarre.We’ll just let Block take it away.
The G7 issued a statement this morning is which they vowed that exchange rates would not be targeted. They said that they were committed to market determined exchange rates. Monetary policy should be focused on domestic objectives. Great, got it.
In a world not gone mad, I could read the G7 statement as a mild rebuke of Japan’s recent policies to destroy the yen. But no. Apparently, we are to read this as encouragement for Japan using policy to fight deflation and build growth. U.S. Treasury Undersecretary Lael Brainard, redefining the term “useful idiot,” came out ahead of the statement to say that she/we(?) supported Japan’s efforts to combat deflation. The market saw this comment, and with the G7 statement (which Taro Aso of course jumped up to agree with vigorously), they have kept the JPYUSD above 94. At this point, why don’t we get it over with and just peg the damn thing at 110? I am serious. We might as well.
Wait. This gets better. Over the weekend, and not getting much attention apparently, we had a very interesting comment from Japanese Economic Minister Akira Amari. In a speech reported by The Japan Times, Amari said, and I quote, “It will be important to show our mettle and see the Nikkei reach the 13,000 mark by the end of the fiscal year” (that’s March 31.)
Everyone got that? Not target inflation. Not target nominal GDP. Not target employment. TARGET… THE ****ING…. STOCK MARKET.
Can we back up a moment? Can you imagine the next Fed statement, we have Bernanke and his crew saying out loud: “It is our goal to get the S&P 500 to 1700 by Thanksgiving.” That’s basically what just happened in Japan over the weekend. Are you serious? Are we supposed to read between the lines and now assume that the BOJ/LDP will be buying Japanese stocks either clandestinely or explicitly in the near future? Is this the way to create confidence and perhaps a wealth effect to clean up a 20 year mess? Is this how this plays out?
So yes – I am a little worked up this morning. I have said all along that I don’t trust the Abe Administration. Apparently that is just the point. They are prepared to twist the rules any which way. And the world’s other policy makers, having worn this t shirt before, are going along. That goes really well until each countries’ exporters start missing numbers and compensation targets in a couple of quarters and then we get into trade protectionism and all the wonderful things that go with that. That will come. The G20 meets at the end of the week. Maybe they will nominate Taro Aso for Pope. Wouldn’t surprise me.