The Bank of Japan's so-called Abenomics monetary policy makes Bernanke's quantitative easing look like a spit in a bucket on a relative basis yet the early reviews are positive. The yen is weakening as was hoped, Japanese stocks are strong and for the first time in recent memory the world's third largest economy seems relevant again.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman, puts the BOJ's plan into perspective and what it means in the U.S. in the attached video. The Japanese economy is 1/3 the size of ours, Chandler reminds viewers. As part of quantitative easing the Fed is spending $85 billion a month. As part of Abenomics Japan is spending $75 billion a month and plans to double the money supply.
Japan's "foot is on the monetary accelerator," Chandler says, quickly reminding viewers that this is precisely what the rest of the world's central banks have wanted to see for years. As a vote of confidence Chandler says foreigners have invested some $65b in Japanese stocks, driving the benchmark Nikkei (^N225) to 5 year highs.
Should the U.S. be worried? Chandler says success for Japan is success for the U.S., at least in the short run. In the longer-term, structural reforms and changes to fiscal policy will be needed to create sustainable improvements.
If this sounds familiar, it should. What Chandler is saying has applied to the U.S. for years.
For Japan's recovery to have staying power it's going to need to broaden its workforce. With an aging population and aversion to immigration, adding workers is going to take a cultural shift that brings women into the fold. Fewer than half of Japanese women of working age are in the workforce compared to 58% in the U.S. Chandler says that has to change.
Chandler's second precondition for a sustainable improvement in Japan is getting corporations to put money to work. Despite companies like Toyota (TM) building U.S. plants, Japanese firms are still doing to little with too much in terms of cash on the balance sheet.
Chandler is encouraged with what he's seeing from the Land of the Rising Sun so far; only time will tell if it's just another head-fake.