FX MONETARY POLICY
East”!). Mr. Draghi is clearly one of the brightest individuals in policy circles today, and the depth and quickness of his intellect are obvious to anyone who has seen his news conferences. However, in my view, the concept of ‘garbage in, garbage out’ applies as much to eminent economists as it does to anyone else. Te wide gulf between economic thought in Europe and Japan is plain to see when we compare the US, which recognized its similarities with Japan’s experiences soon aſter the crisis hit and found a path to recovery, and Europe, where the policymaking authorities continue to emphasize their differences with Japan while unemployment is climbing to new highs five years aſter the crisis struck.”
during this period. But the fact that people perceived conditions as being inflationary rather than deflationary means they did not put off purchases because of an expectation that prices would fall further.”
As can be inferred from this artificial Q&A, making comparisons is difficult, but just dismissing that Japan story can teach us something is likely the wrong attitude. Yes, the famous saying “history does not repeat itself but rhymes” can be an oversimplification in this case. Mr. Koo’s conclusion is a bit harsh in my view but I tend to agree with the general concept: “In short, From Japan, both the European capitals and the east coast of the United States are a 12-hour flight away. But Europe seems to view Japan as being a far-off land (the “Far
52 FX TRADER MAGAZINE January - March 2014 Te Bank of Japan’s paralysis in
the 90s and early 2000s seems extraordinary to us now in the era of Abe-Kuroda determination, and so do the arguments made by the governors of the day, Masaru Hayami and Toshihiko Fukui. Mr.Hayami almost seemed to welcome deflation, thinking that it would force the political class to ram through root-and-branch reform, although it did no such thing. “I am not worried about the fall in prices,” he said famously in January 2001. Mr.Fukui even said rising unemployment was a “good thing”. It would hold political feet to the fire.
Te details are recounted in the
brilliant “Princes of the Yen” by professor Richard Werner, now at Southampton University
according to which the most recent upheaval Alessandro Balsotti
in the Japanese economy is the result of the policies of a central bank less concerned with stimulating the economy
than with its own turf
battles and its ideological agenda to change Japan’s economic structure.
I think it is impossible to say that ECB’s attitude has a long-term plan behind where monetary stimulus is being withheld because it might help slackers off the hook with the definition
of slacking determined
by a tiny cell in the German finance ministry. Anyway in political and economical circles the argument of ECB feeling compelled to avoid being too easy is made regularly: that should obviously be done in order to keep a bit of pressure on governments implementing badly needed structural reforms. But we need to be careful since, in the end, differences between Japan and Europe may turn out to be at our disadvantage instead of being reassuring ones. Japan’s economy might not have done much during the past two decades, but on a per capita basis Japanese have largely kept pace with other citizens of developed markets. With a caveat: Tat per capita growth has largely come thanks to very large and persistent government deficits. By contrast, the euro zone is trying to do growth without the deficits, which is one key reason why the analogy between the euro and the yen can go only so far. Japan might well have had benign deflation. Te euro zone’s is unlikely to prove the same.
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