Koizumi's Now You See Me, Now You Don't On Inflation Targeting

Japan watching can be a very frustrating business for economists. Last year we had economy minister Takenaka prjecting himself as a hard-landing specialist to sort out once-and-for-all the country's non performing loan problem. Then everything went quiet and we are still waiting to see whether the current round of inspections will prove effective or not. Now it's the turn of the Bank of Japan to draw the headlines. World opinion has it that the new governor should be an 'inflation targeter'. Now leaving aside the fact that, as dedicated followers of this blog know, my opinion is that Japan's deflation problem could prove much more intractable than the now popular 'inflation targeting' mantra assumes, it seems the Japanese themselves are not really buying it. Or at least this could be the interpretation to put on Koizumi's latest comments on the topic. Speaking to a parliamentary budget committee, he said: "A target of merely achieving higher prices is not desirable." A new BoJ governor will be appointed for a five-year term from March 19, and this has triggered a great deal of speculation that Japan may be about to embark on a more aggressive monetary policy. The prime minister himself had stoked such speculation at the end of last year by saying the battle against deflation, now in its fourth year, was the most important challenge of 2003. He also allowed several close colleagues to talk openly about the benefits of an inflation target, a policy strongly opposed by the BoJ. Now it seems that opponents of this policy (or opinion polls) are having more success in winning Koizumi's ear. Of course, this oposition to provoked inflation political could be far more political than economic, in a country where there are a lot of old people (and hence votes), and where many of these have savings which would be devalued by any inflationary process.

However yesterday, Mr Koizumi said that unless higher prices were accompanied by increased economic activity, it would erode living standards. "If salary levels stayed the same and only prices rose, there would be side effects. That is why I am pursuing economic reform to reinvigorate the economy." The LDP is also thought to be concerned that an aggressive inflation policy would be electorally unpopular, since it would erode the savings of many retired Japanese on fixed incomes who are benefiting from deflation.The prime minister's comments are the clearest indication yet that he is not keen to appoint an aggressive inflation-fighter as BoJ governor. When the name of Nobuyuki Nakahara, who advocates an inflation target, was floated, Mr Koizumi received a flurry of e-mails and faxes claiming Mr Nakahara was unsuitable for the job. Several BoJ officials have said privately that Mr Nakahara, or a similar candidate, would have difficulty in leading the central bank, since the six remaining members of the board are suspicious of an inflation-or-bust policy. Of the nine-member board, the governor and two deputy governors come up for re-election in March. Minutes of the December policy board meeting, released this week, show that all but one of the existing board are opposed to an inflation target, which would set a specific goal for price rises within a specified time.
Source: Financial Times
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Sweden Delays Euro Entry Date

In a decision which for once speaks of wisdom and sense of judgement Sweden on Tuesday ruled out an early move to join the euro, even if voters give their backing to the single currency in September's referendum.Gunnar Lund, the minister responsible for euro issues, said the country would adopt the euro in 2006 to give its banking system, government agencies, and large companies plenty of time to prepare for the currency switch in the event of a "yes" vote in the referendum. The government had previously indicated that January 1 2005 was its preferred date for joining the single currency, with notes and coins to be introduced a year later. It is now planned that, in the event of a referendum yes both events will take place simultaneously. A bit more time for the institutions to prepare, and a bit more time to see whether the Euro's current ills are (as many of us fear) endemic to the system, or whether they are mere teething problems. In any event the opinion polls offer no clear forecast for September, with opinion divided roughly 50-50.

Mr Lund said the central bank and the country's leading banks had indicated that a 15-month transition period between the referendum and January 2005 was too short for them to change their IT systems and test them fully.He said: "A big bang solution will be smoother and more secure for everybody involved. It will also be cheaper because banks and companies will not have to invest in systems that only need to be in place for a year."Klas Eklund, chief economist at SEB, one of Sweden's leading banks, said that it was impossible for banks and companies to start preparing their systems before the referendum, given that the outcome of the September 14 poll was likely to be close.The latest opinion polls have shown the "yes" and "no" camps running neck-and-neck.A Temo opinion poll last week gave euro opponents 44 per cent support, and supporters 43 per cent. Another poll gave the "yes" camp a 39.5 per cent to 39.3 per cent lead. Swedish opposition to the single currency increased during the autumn before stabilising this month. The "no" side is benefiting from perceptions of Germany's economic weakness and the fact that the Swedish economy is doing better than the eurozone's. Opponents also expect to benefit if Gordon Brown, the British chancellor (finance minister), decides the time is not right for the UK to apply to join the euro, when he presents the results of his five economic tests by June.
Source: Financial Times
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The Internet: What the Economist Gets and Doesn't Get

An interesting piece from the economist, which apart from the occasional gaff, at least applies itself to thinking positively about impending changes. The gaffs? Well try "over the next few decades, the internet and related technologies really will profoundly transform society": the dimension relating to the pace of change is way of beam, I think were talking about THIS decade here. In fact a strong case could be made that many of the changes are already well under way, as usual we're just not noticing and identifying them enough. I have the feeling that my life changes in some small but important way at least once every three months. Despite the frustrations there are pluses, like the comment from Victor Zue, director of MIT's Laboratory for Computer Science, who expects high-speed access to the internet to be virtually free in rich countries within five years. Free broadband in five years does sound pretty revolutionary, as does the comment about "tiny tracking chips called radio-frequency identification devices being used as pet passports. Soon they will be small, powerful and cheap enough to be implanted into everything from humans to milk cartons, recording and transmitting real-time medical data or serving as a form of inventory control". Now soon-available cheap implants to allow direct communication with my computer hard drive, that would be something. Still, the Economist's wish to be on the side of the good and just without offending anyone leaves it all too often with a mixture of sound analysis and unconvincing conclusions.

Far from being over, the computer and telecoms revolution that created the internet has barely begun. These technologies will change almost every aspect of our lives—private, social, cultural, economic and political. In some areas, the changes may be marginal, but in most they will be profound, and unprecedented.

This is because new electronic technologies deal with the very essence of human society: communication between people. Earlier technologies, from printing to the telegraph, have done likewise, and have wrought big changes over time. But the social changes over the coming decades are likely to be much more extensive, and to happen much faster, than any in the past, because the technologies driving them are continuing to develop at a breakneck pace. More importantly, they look as if together they will be as pervasive and ubiquitous as electricity. Whether this will be for good or ill is impossible to predict, because how they are applied will be a matter of social and political choice. Many of these choices will be difficult and divisive.

The reason to think that the internet revolution will not only resume but accelerate is that advances in its underlying technologies show no signs of slowing down. The power of computer chips continues to race ahead. Moore's law—according to which the power of a computer chip will double about every 18 months (see chart 1)—has proved to be true since 1965, when it was first propounded by Gordon Moore, a co-founder of Intel, a chip maker. Intel is confident that it will be able to maintain this pace of improvement in silicon for another 15 years. Recent breakthroughs by researchers at IBM and Hewlett Packard in molecular electronics lead many experts to believe that Moore's law will continue to apply for perhaps another 50 years. Similarly dramatic advances in storage and transmission technologies are also in prospect.
Source: The Economist
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China Now No1 Exporter to Japan

In another sign of China's growing importance in world trade, figures released this week officially confirm what was aready becoming obvious, China is now the world's number one exporter to Japan. Given the size of the Chinese economy, and its rapid growth rate this picture is likely to be repeated across the developed world. China, despite its currently low per capita incomes is enormous due to its population size. Currently the world's number six economy, this decade should see China steadiliy climbing the ratings on all fronts. Meanwhile in Japan the deflationary forces continue their along their energy draining path as retail sales mark a 2.3% drop Y on Y in 02. Of course with the Japanese economy shrinking at 1 - 2 % a year and the Chinese one growing at 7 - 8% a little work with the calculator will show that the day when China's economy is bigger than Japan's is not too far off.

China outsold the United States in Japan for the first time in 2002, according to yearly import-export statistics released by the Finance Ministry on Monday. In a year that saw imports from China jump 9.9 percent to 7.72 trillion yen, U.S. imports fell 5.9 percent to 7.22 trillion yen. China's success was driven in part by brisk machinery sales while U.S. sales were hurt by a stagnant information technology sector.Though Chinese exports to Japan rose nearly 10 percent, Japan did even better, lifting its sales to China by 32.3 percent-a figure that helped reduce Tokyo's trade deficit with the Asian giant by 15.9 percent to 2.75 trillion yen last year.
Source: Asahi Shimbun
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Department store sales and supermarket store sales in calendar 2002 fell 2.3 percent and 2.1 percent, respectively, industry associations announced Friday. Sales at 292 department stores operated by 103 association member companies last year fell to 8.34 trillion yen, the Japan Department Stores Association said. Sales at 9,137 supermarket stores run by 102 member companies last year dropped to 14.37 trillion yen, the Japan Chain Stores Association said. In December alone, department store sales fell 4.9 percent to 972.1 billion yen, marking the ninth straight month of year-on-year decrease, the association said. Sales of clothing, especially high-priced clothing, were sluggish. Sales dropped 6.5 percent from a year ago, marking the fourth consecutive month of decline.
Source: Daily Yomiuri
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