Kuroda's Economic Armageddon

Ladies & Gentlemen

All market eyes will be focused  on Japan tomorrow, as they release updated inflation forecasts. Essentially, this is an indicator of when, or if, the bank;s board members see Japan reaching their inflation target of 2% and markets are expecting the BOJ to become even more engaged in search of the 2%. The Markets over the past few weeks have priced in more stimulus, especially with the recent Nikkei gains.

Kuroda has done an excellent job in albeit trying circumstances, elevating inflation expectations in an economy that has had actually 0 inflation in the last 20 years. 

Just cast your mind back to 2 years ago when the USDJPY was trading around 80 and now trading around 120 & Nikkei at 8,000 & now nearly 20,000 - really putting QE into Economic action - essentially reflating the risk/assets base. But still have a lot more positive inflation to go up to 2%.  However, could we really see the BOJ wanting to weaken the Yen further? At the moment Japan is still very cheap & the major corporates have been rubbing their hands in Green for the past few years now - on the flip/side the small/medium companies have been feeling the pinch with greater import costs. In addition, policy markers are also adjusting for (and looking forward to) lower a base of lower oil prices, but again adding more stimulus could be more problematic in the longer term.

In my view, the decision tomorrow is more likely to be felt within the Equity Markets as Kuroda focuses on building a significant amount of more wealth into the Nikkei and their is a high conviction level from traders that something will happen - Especially as Japan owns more than half of the nations ETFs (An important Abenomics Battleground) - But really where does true Economic Theory come into play here? Central Banks buying up ETFs to promote more "risk-taking activity in the Economy"... Overall, Japan has a very important lesson that they have probably been mislearning and it's underlying issues could be 1 of 2 things... either Deflation or is it because they failed to act like the US did in the 90s.

As Buffet once said"We are all Market Vigilantes" So what is the end game for the BOJ? Does AbeNomics fail trying to approach a 2% target that they may not ever hit. We face an absolute Economic Armageddon. In my view, a lot of Japanese pride on the line.

Keep your eyes peeled & fingers on the right side of the trigger!

Best of luck
Anish @ Atom8.com