EYE ON JAPAN: BACK TO ZERO?

Hot on the heels of US inflation data, Japanese customs data shows that exports declined there by the fastest pace since 2001 as global demand dropped sharply for Japanese products. The speculation by local policy watchers is that deflation is back and that the BOJ will start taking action. We have all seen this movie before, deflation hammers the Japanese economy and the BOJ responds by slashing rates creating stagnation. Governor Shirakawa would have to cut the basic discount rate from 0.3%, actually 5 basis points higher than the starting point that his predecessor Hayami had to work with in 2001 but the outcome of any cutting from here lease to the same destination -next stop zero.

We are short the Japanese equity market and the yen via the EWJ & FXY.

Andrew Barber
Director