Bank of Japan Long holidays

William Pezek, analyst Bloomberg NewsVilyam Pezek, analyst "Bloomberg News"

Do you really need to spare a small army of economists, following the Bank of Japan. During most of 2004, the Central Bank did not do anything. And looking ahead to 2005, with some certainty we can assume that he does not do much more. Let us turn to the Observer of the Bank of Japan "Macquarie Securities Ltd." Richard Dzherama. He expects "a consistent approach to the inaction of the monetary authorities of Japan, among other things, that is a sign that their seven-fight deflation ends. But then what can we expect with regard to short-term interest rates at zero and the Bank of Japan, the stronger yen inflated the second economy in the world? This means that the burden falls on the government to do its part. The problem is that politicians seem prepared to go through more easily, again relying on a weak yen to support the revival of the economy. With regard to this recovery, there are obvious two things - one good and one bad. The good news is that this is the best opportunity for Japan, which she had for 14 years, to enjoy strong growth, rising living standards and increasing employment. The bad news is the fact that this improvement, as it turns out, is not self-sustaining, which may be expected in Japan and worldwide.

The head of the Bank of Japan Toshihiko Fakui, which on Friday announced the go twice a year, the Bank of Japan forecasts on prices and economic growth, on Tuesday before that made clear his vision of the issue. "Deflation," he said, "is a problem that still exists in the Japanese economy, and we still have not escaped this abnormal condition." Lack of consumer confidence is clearly defined, with a man who knows more than any other, that the problem is not a lesser supply of yen into the economy than the existing demand for it. Japan could make a difference, increasing deregulation, reducing government debt, offering women more opportunities for self-realization in the economy and perestraivaya national pension system that the family is less than thrilled about its future.

The main driving forces behind the recovery in Japan - is a strong global growth and a healthier corporate sector - is still present, although they are not fueled consumer spending. There is little evidence that consumers have enough confidence in the economic leadership of Japan to increase purchases. It is the same reason that other revival of Japanese economy over the past 14 years have failed.

The Government of Prime Minister Koizumi Dzhanishiro must avoid complacency, which leads to the disruption of economic progress. This is truly convince the average Japanese and foreign investors, and the artists that policy-makers avoid mistakes of the past. One could have won the confidence to push Japanese growth and the markets back to the glorious days of the 1980th.

Earthquake
The probability of such disasters is low, but still this happens, and the earthquake on October 23 was too much proof. Let still on its economic aspects - as efforts to restore can enhance economic growth. In the short term, this may lead to the investors will be busy thinking about the actions which the construction companies to buy, and shares what the insurance companies to sell.
Yet the earthquake in the Niigata region, killing at least 27 and injured more than 1,300 people, according to perceptions of the Japanese is "The greatest" - even more than it was an earthquake in Kobe in 1995, which killed more than 5,000 man. This perception is related to the fact that the reaction of the Government of Japan Koizumi shaken confidence in its ability to meet the challenges of large natural disasters in large cities or to the terrorist attacks. While it is difficult to quantify how the loss of confidence may reduce confidence in the ability of Japanese Koizumi to restore the true prosperity of Japan. This is not due to the fact that the Japanese do not have sufficient savings to make more purchases - they will not do so until it can be confident that not lose their jobs over the next six months from this moment. This is largely associated with confidence, and what is not so much in economic governance Koizumi. The weaker yen It is not clear that the Bank of Japan has great confidence. As a result, the end of quantitative easing is not visible in the field of view, "said Chief Economist," Lehman Brothers Japan Inc. " Paul Sherd. The fact that the Bank of Japan does not have a serious discussion of deflation ending soon cools hopes that Japan is returning to normal status of the economy. It can also be seen in the fact that the Government is not using today's growth, to reduce the national debt approaching 150% of the gross domestic product.

Therefore, it is unlikely to be a surprise for investors, if Japan would again return to the weakening of the yen. Maintaining exports at the expense of a competitive exchange rate, was the most consistent policy of Koizumi, and he can not be satisfied with the yen rising to 2.2% against the dollar over the past 12 months. Finance Minister Sadakazu Tanigaki this week said that Japan was ready to take active steps to stabilize the yen.

The sudden attention to the yen is a tacit acknowledgment that the recovery might have reached its maximum. Six months ago, when the mood about the Japanese economy was quite optimistic, government officials, it seemed not much had been concerned about the yen. Now, when growth was the slowest for the year - 1.3% per year in the second quarter - the issue is back in the field of view of politicians. This means that even if the observers for the Bank of Japan can take long vacations, currency traders may wait for a very turbulent next several months.

Forex Magazine
based on www.bloomberg.com