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Sassan Ghahramani: Trading the Great Global -2-

22 Jul 2017 6:24 am

What about Japan, which is nowhere near normalizing?

As the world settles into a 2% economy, Japan is basically a half-a-percent economy because of the demographics and aging population. That reinforces a very low-inflation, low-wage-growth structure. This is an economy with a high standard of living, solid corporate sector and business profits, and a 2.8% unemployment rate.

Between them, Bank of Japan Governor Haruhiko Kuroda and Prime Minister Shinzo Abe managed to get Japan out of deflation. The problem is that Kuroda set a 2% inflation target that is just too high. They would need to create such a distorted stimulative monetary policy to get there. They're starting to get some pressure already from the bond markets and banks and private-sector economists, which have been in a world where the yield curve is locked between negative 0.1% and zero on the 10-year. There is zero trading. There is no market, no actual activity except government issues and the BOJ's massive bond-purchase program. People are saying forget the 2%, just let this thing normalize structurally; perhaps it's not appropriate for Japan. Also, Governor Kuroda's term comes to an end next April. But that is a story for next year.

Thanks, Sass.

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July 22, 2017 02:24 ET (06:24 GMT)

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