Prime Minister Abe and BoJ Governor Kuroda know that Abenomics is failing at an aggregate level.
They understand however that while that may be the case at the moment the debasement of the Yen from 79 when Abe first announced his radical economics plan to 118 today – a fall of just over 49% – is the best chance for Japan to get both inflation and manufacturing moving again.
The recent GDP data, although weak, showed a deflator of 2% suggesting inflation may not be too far away and this afternoon the release of the Markit/JMMA Flash PMI shows that manufacturing output is at an eight month high of 53.5 from 51.3 last month.
Sure the headline index was down a little at 52.1 versus 52.4 last month but overall output growth for manufacturers is growing at its fastest pace since March.
Add this to the resurgence of export growth seen in this morning’s release of Japanese October trade data showing a 9.6% YoY growth rate of exports and we see exactly why the Yen debasement is both so important and likely enduring.
It’s the only tool the Japanese currently have but it might just be working.