Abe Visits Putin, Counter to U.S. Wishes

The two most prominent features of Japanese foreign policy are caution and the US alliance. Prime Minister Shinzo Abe’s decision to travel to Sochi for a summit with President Vladimir Putin on 6 May was therefore remarkable.

The visit comes at a time when Russia remains under international sanctions and the United States has made it clear that it intends to maintain a policy of isolation. Indeed, in a February phone call President Obama directly urged Abe to abandon the visit. So what explains this uncharacteristically bold step? And did it pay off?

Japan GDP Surprises, FOMC Minutes Do Not

The US dollar is rising against all the major currencies today.  The Australian dollar is retracing a sufficient part of its recent gains to suggest that the current phase of the US dollar's recovery is not over. Given that the Aussie topped out a week before the other major currencies, it is reasonable that it begins recovering first.  Its recent resilience was noted, but that has evaporated today, but a 0.8% drop by early European activity. 

Check with your BFF when Looking for Work...or Not

Many people claim to have a broad social circle, but we are all more likely to consider only a handful of people as our “close” friends. These are the ones we turn to when we want advice or company. More importantly though, friends like these can give empathy and support at a time of need.

Finding yourself out of work involuntarily is clearly just such a moment, and so naturally, you turn to your closest friends for help getting back in the job market. That’s what friends are for, right?

Meanwhile in the Central Philippine Sea

While tensions continue to rise in the South China Sea and the disputing governments nervously await a decision in the Philippines’ arbitration case against China, an important sideshow has arisen between Japan and Taiwan in the central Philippine Sea.

On 24 April Japan’s Coast Guard arrested a Taiwanese fishing vessel and its crew for fishing in waters that Japan claims are part of its 200-nautical mile ‘exclusive economic zone’ (EEZ) under the United Nations Convention on the Law of the Sea (UNCLOS).

Prioritizing the G7 Countries' Priorties

Later this month, Japan will host the 42nd G7 summit. One point of discussion will be Japan’s plan to increase its consumption tax in April 2017. Nobel laureates Paul Krugman and Joseph Stiglitz have come out against this plan, arguing that Japan should hold off on the consumption tax increase. Eminent economists Dale Jorgenson and Jean Tirole have mirrored these concerns, suggesting that long-term structural reforms, not short-term fiscal fixes, are the answer to Japan’s economic woes.

Responding to Soft Chinese Data by not Responding

The most notable thing is not what has happened, but what has not happened.  The market has not responded to the soft Chinese data over the weekend.  Chinese equities began softer but recovered fully and the Shanghai Composite closed on its highs.  The MSCI Asia Pacific Index is snapping a two-day losing streak with a 0.5% gain.

And Now for Something Completely Different

The Great Financial Crisis has exposed a deep chasm in economics and economic policy.  In no single institution is this crystallized more than at the Bank of Japan.  The former Governor, Shirakawa brought policy rates to nearly zero to combat deflation. His successor, Kuroda, took the central bank in the completely other direction. He has introduced three elements of unconventional policy in an institution that was wedded to orthodoxy.

But What if You're Already Using Unconventional Monetary Policy?

On 29 January 2016, the Bank of Japan (BoJ) announced its monetary policy for the New Year: quantitative and qualitative monetary easing with a negative interest rate. The policy came as a surprise to money markets. The Nikkei index went up by over 800 points in two days and the yen depreciated sharply against the US dollar.

However, the BoJ is not the first central bank to adopt a negative interest rate target, negative interest rate strategies remain unfamiliar territory to macroeconomists.