"QE-Japan" Is Coming as Shinzo Abe Unleashes Easy Money

Is easy money the path to prosperity? That’s what Japan’s trying to find out in 2013, as it embarks under new prime minister Shinzo Abe and his dovish monetary policy; so far, things have gone even better than expected. The Nikkei (NIKKEIINDICES: ^NI225  ) took a hit this week in losing around 1% over the past five days, but Japan’s leading stock index is up more than 18% year to date. The ongoing Cyprus drama in the eurozone took a whack at markets across Asia, but despite stocks retreating during the past week, many investors are still optimistic about Japan’s bold new direction.

Aggressive money moves has Japan in a groove
With a new chief in at the Bank of Japan, the country’s central bank is set to begin buying up trillions of yen worth of bonds, much as the U.S. Federal Reserve has done with its “QE-infinity” program. Abe’s targeting 2% inflation, as he tries to jump-start an economy that’s stagnated since the '90s, as deflation has hurt consumer prices, wages, and property prices. Still, the moves have sparked fears of a currency war with other leading economies, as well as risking the stability of Japan’s bond market -- in which Japan’s banks are heavily invested -- if Abe’s goals fail.

A weaker yen will help drive up import prices as well as boost exports for multinational Japanese companies looking for a leg up on competitors, but it could hurt average Japanese consumers if wages can’t rise fast enough to outpace inflation. It won’t make the international community very happy, either: Asian rival China continues to put pressure on its island neighbor and other nations pursuing weaker monetary policy. China also hasn’t been too happy lately over Japan regarding the Senkaku Islands, claimed by both nations in a dispute that has continued to simmer over recent months.

That dispute has resulted in Japanese carmakers worrying about losing influence in the lucrative Chinese auto market. Toyota’s (NYSE: TM  ) Chinese sales in January and February fell 13% year over year as the automaker attempts to mitigate its losses from the international row. Outgoing Toyota chairman Fujio Cho expressed his sentiments on Friday that Japan and China need to keep economic exchanges open, even with the political fight, but Toyota will need more than that to overtake rival GM in the second-largest economy.

Fellow Japanese carmaker Honda (NYSE: HMC  ) has taken hits this week, as shares fell 0.5%, and it’s facing recalls. The company is recalling 76,000 of its Acura TSX cars made between 2004 and 2008, telling the National Highway Transportation Safety Administration of a stalling problem in the vehicles. It’s only a regional recall – a tactic that can save automakers money – that affects vehicles in certain Northeastern and Midwestern states, so it’s doubtful it will hurt investors too badly. Still, Honda’s faced a number of safety issues that have sparked recalls recently, and this latest problem won’t inspire confidence.

Outside of the auto sphere, electronics maker Panasonic (NASDAQOTH: PCRFY  ) is preparing for a major shake-up. Shares of the company have fallen 1.3% this week after it announced it was considering selling off its health-care business, and exiting the plasma TV market. While Panasonic’s looking for growth out of its core TV business, it’s in desperate need of some sort of big move as it struggles with falling sales and job cuts. Selling assets and refocusing on its core businesses is a step in the right direction.

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  • Report this Comment On March 23, 2013, at 1:30 AM, ContangoDown wrote:

    While Shinzo Abe's promise of a 2% inflation target gets all the attention, the reality is that we are facing a reversal of monetary cyclicals, with the U.S. facing deflation despite the Fed's best efforts.

    A key point about Japan is that even though the Yen declined roughly 17% since Oct 2012, the PPB of Brent crude as a ratio of Yen hasn't risen that dramatically, year over year (+2%). This also confirms deflationary forces in effect, with commodities priced in dollars actually creating a win-win scenario for Japanese inflation.

    www.ContangoDown.com

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