Taking Advantage of U.S. Tapering Policy

Responses of Japanese media on the announcement of U.S. Federal Reserve Board of Governors to taper its bond-buying was quite positive with a perspective that it would have preferable impact on Japan’s economy. Actually, Tokyo Stock Market rallied, marking the highest price in these six years, and investors bought U.S. dollar selling Japanese Yen in Tokyo Foreign Exchange. However, the future of Japanese economy is not so hopeful as it temporarily showed with the sign of U.S. economic recovery.

Nikkei Shimbun emphasized return of money from emerging market to developed countries. It focused on the rise of stock price in developed countries such as in Japan and European Union. On the other hand, India and China showed clear decline with a calculation that strong dollar increases the burden of emerging markets. Nikkei explained the positive response of markets had two aspects. One was that U.S. economy had been recovered to the extent it could be tapering quantitative easing, and another was that Fed would be careful enough to maintain low-interest policy as long as needed.

Asahi Shimbun highlighted sharp contrast between U.S. and Japan. It introduced the words of the Chairman of Bank of Japan, Haruhiko Kuroda, which was “Markets accept the Fed’s decision as preferable. U.S. economy is stable and the policy of Fed is working.” Having little negative impact on Japan market, the newspaper expected further monetary easing without any regret. If the economy shows a negative sign right after consumption tax hike next April, there may be an additional monetary easing.

Expecting positive attitude of BoJ on further easing, markets predict weaker Japanese yen against U.S. dollar, which will work preferable for Japanese exporters, namely carmakers. While monetary policy keeps on swelling, fiscal policy is still going positive for issuing new bonds, making little improvement on fiscal structure. The government of Japan is assuming the same level of national bonds in FY 2014 as in FY 2013.

In the decision making meeting, BoJ unanimously decided to maintain the bold monetary easing policy introduced in April, while making no change in the assessment of domestic economy trend as “moderately recovering.” Although the impact of U.S. policy change was limited, consumer spending is not increasing as it showed in earlier this year. Fundamental condition of Japanese economy is far from the situation of stable growth. If the trend stays as it is now, there can be criticisms on Japanese money-oriented economy policy, especially from European governments. No one in Japanese economic leadership talks about exit strategy, as long as the economy shows positive sign.