BOJ News:

https://www.yahoo.com/finance/news/bank-japan-says-ready-ease-080116510.html


Article:

RIYADH (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Saturday the yen's recent declines were largely driven by a strong dollar, shrugging off some market views that the widening coronavirus epidemic is triggering an outflow of funds from Asia.

Kuroda also said he had not changed his view that Japan's economy would continue to recover moderately, suggesting that he saw no immediate need for the BOJ to expand stimulus.

"If needed, we will take additional monetary easing steps without hesitation," he told reporters upon arriving at a Group of 20 finance leaders' gathering in Riyadh.

"But the situation is still uncertain. I don't think our scenario projecting a moderate economic recovery has been derailed."

Comments:

Of course anytime there is the G20 or any other large international or global gathering, some usually is going to be positive about their economy. You usually never hear anything too negative other than "were watching carefully" " We got this situation under control" etc. So this is nothing new and to be fair, Kuroda has usually been very positive about the economy.

But he also reassures those listening, if needed, additional easing steps will be taken, meaning we will work fast to ensure the foreign capital and others will not leave the country in a situation that might show too much decrease in the economy.

"But the situation is still uncertain" might mean he sees the virus situation maybe offsetting the moderate recovery.

Article:

The fallout from the coronavirus crisis has overshadowed the meeting of the world's top economies kicking off on Saturday. Business disruptions in China are starting to spill over into the global economy, with parts shortages rippling through supply chains as far away as the United States.

The yen bounced back on Friday after suffering its worst two-day performance since 2017 on worries about the health of Japan's economy, which has been hit by supply-chain disruptions and a plunge in Chinese tourists caused by the virus outbreak.

Kuroda dismissed views held by some market players that the yen could be losing its status as a safe-haven currency.

"When you look at recent developments, the dollar is strengthening against the yen, the euro and various currencies including those in Asia," Kuroda said.

"It's true there is uncertainty over the coronavirus outbreak's impact on the Chinese, Asian and global economies. But I don't think there has been a fundamental change in the exchange-rate market."

Comments

Unfortunately the virus situation has now become a global situation, and all are now having some crisis in their respective countries.

Is there a definite outflow of currency in Asia. Probably no more than normal but maybe some more than usual, but not enough to cause a major financial crisis.

Japan has been considered a 'safe haven" for a long time, due to the stability of the overall economy. While not growing  at a robust rate, or what everyone wants, it is still a very stable economy with "modest" economic growth.

Article:

UPBEAT ON OUTLOOK

Japan's economy shrank at its fastest pace in nearly six years in the December quarter, as soft global demand for Japanese cars and machinery and last year's sales tax hike hurt domestic consumption and business spending.

Some analysts expect the economy to contract again in the current quarter, dashing the BOJ's hope that an expected rebound in global growth in the middle of the year will underpin Japan's fragile recovery.

Kuroda brushed aside voices of pessimism, saying that corporate capital expenditure remained firm and rising household income was underpinning domestic consumption of an array of goods and services.

Temporary factors that led to the October-December economic contraction, such as damage from a string of typhoons and the sales tax hike, will fade later this year, he said.

While the coronavirus outbreak was a fresh risk, other uncertainties that dragged on growth like the Sino-U.S. trade tensions and Brexit were subsiding, Kuroda added.

"I don't expect Japan's economy to suffer a severe downturn," he said.

Under a policy dubbed yield curve control, the BOJ caps long-term borrowing costs around zero to spur growth and achieve its elusive 2% inflation target.

Many BOJ policymakers are wary of ramping up stimulus unless the economy is hit by a severe shock due to their dwindling ammunition and the rising cost of prolonged easing such as the hit to commercial banks' profits from ultra-low interest rates.

Comments:

Everyone keeps writing the Japan's economy shrank at its fastest pace in nearly six years. Well when was that before? In April 2014 when there was the 5% to 8% sales tax increase. So a less than normal or wanted economic growth in Q3 in 2014 was not a surprise. So it should not be a surprise that Q4 on 2019 didn't grow as much as everyone wanted.

Of course add in global trade challenges and business investment in machinery etc. that also added to the challenge.

It should be noted that business investment in November was actually up and we seem to forget the increases quickly when the decreases are in the new today.

Business investment, like any other spending, is never exactly an upward linear progression, and there will be months of increase, months of no change, and months of decrease, as part of the normal business cycle.

Kuroda seems to want to say all is not bad... with..... "corporate capital expenditure"
 spending is firm, meaning again some months up some months down, and some months no change, and really meaning its still there.

And then...."rising household income' is a very good sign, if its true. But the question is how much is it, and is it was it enough to offset the 8% to 10% increase in the sales tax.

Consumers need to feel good about the increase in their income, meaning they feel better and they might save some of it and spend some of it, and then as Kuroda hopes that extra spending because of the extra income, will help the economy, if there is a segment of the consumers who have cut back on their spending due to the sales tax increase.

And finally.... "a severe shock"? Well I think that the possibility of a "sever shock" is about to become a reality or very likely with the virus situation.

But here is the problem. There is a phrase..... "self fulfilling prophecy" meaning what you think and say eventually can become reality.

Kuroda knows this, so he, for now, is not going say outright, just yet, that the Japanese economy is headed downward due to the virus situation.

He will watch very carefully and then, like most central banks, will pick the right time to make a statement about the situation.

Central banks are very cautious with the language they use because the wrong phrase here or their can spur markets, stock markets both up and down, so they are very cautious about what they and when they say it.

Here is an example; "There is going to be a shortage" of something so everyone panics, begins to horde and then all of a sudden you have a shortage of something because people become too emotional.

We lets see, how many products in Japan now have a shortage because of whomever, thought there would be a shortage of that product.

© 2020, Tom Metts, all rights reserved