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Monday, November 28, 2005

Here We Go Again!

Well yet another consumption driven recovery seems to be grinding to a halt in Japan. The only thing which puzzles me is why people continue to be surprised, and why people fail to see the similarieties between Japan and Germany in this regard. It's an up-hill (rather than a flat) world obviously:

Japan’s “Warm Biz” campaign, which should have boosted the sale of warm winter clothes, has failed to catch the imagination of consumers. Retail sales in October were down 0.3 per cent on the year – the first annual fall in eight months. The news prompted the Ministry of Economy, Trade and Industry, which published the figures on Monday, to downgrade its view on retail spending. An official was quoted by Reuters as saying on Monday that retail sales were flattening, toning down the Ministry’s view in the second quarter that sales were recovering moderately.

There is some discussion of the German comparison in this post and comments.

Meantime, with the fiscal deficit issues looming in both countries, central bank independence (or reducing it I should say)is one more creeping onto the agenda. I noted this last week vis-a-vis Japan:

Heizo Takenaka, the powerful internal affairs minister, told the central bank it should set monetary policy in conjunction with the government. In a repeat of stern remarks made by another senior politician this month, he warned the BoJ that its independence could be stripped away if it tightened policy prematurely.

Meantime, vis-a-vis Germany, Wolfgang Munchau reminds us that:

"It is still not too late to propose ECB reform as part of the next treaty revision. For as long as EU leaders maintain the status quo, they have the central bank they deserve."

"The pre-announced interest rate rise that the European Central Bank is due to agree this Thursday must rank as one of the most bizarre monetary policy decisions of recent times. The economic recovery in the eurozone remains fragile, as last week’s German confidence indicators have shown. Even the ECB’s own forecast for headline inflation is relatively optimistic, while core inflation remained unchanged at 1.5 per cent in October."

I couldn't agree more with Munchau about one thing though: the recent decision announced by Trichet to raise eurozone rates "must rank as one of the most bizarre monetary policy decisions of recent times"!