The below is just direct English translation
of my original Japanese Weekly issued yesterday
through Google AI.
I hope it could be of help to readers
all over the world outside Japan.
① Last weekend, the yen depreciated to the 145 yen level at one point,
The Nikkei Stock Average has recovered to the 33,000 yen level for the first time in 33 years.
The financial markets are moving right,
Is that fair value?
Hello, this is Bing. 😊
I don't think it can be said unconditionally whether the movements in the financial markets are correct or not, but various factors are believed to have contributed to the depreciation of the yen and the rise in the Nikkei Stock Average.
For example, regarding the depreciation of the yen, there is a view that the Bank of Japan's quantitative and qualitative monetary easing and the quantitative and qualitative monetary easing with yield curve (YCC) changed expectations and accelerated the depreciation of the yen. There are². It has also been pointed out that rising interest rates in the United States and heightened inflation expectations are putting downward pressure on the yen³.
On the other hand, there is an analysis that the rise in the Nikkei Stock Average is due to expectations for improvement in corporate earnings due to the global economic recovery and the spread of corona vaccines. There is also a view that the Japanese government and the Bank of Japan's economic measures and monetary easing are also supporting stock prices.
These factors influence each other, and I think it is difficult to judge whether a weaker yen or higher stock prices are fair value. However, as a guideline, according to the equilibrium exchange rate (BEER) model released by Bank of America (BofA), the fair price of the yen is 90.74 yen, and the current yen exchange rate is about 49% higher. Estimated¹. The model also shows that the dollar is overvalued relative to the G10 currencies in general.
As described above, the movement of financial markets is determined by various factors, and it is not possible to generalize whether or not a stock is fair value.
(2) Last week, the Governor of the Bank of Japan, Ueda, at the ECB Summer Economic Forum in Portugal
It seems that he made a joke in English and became a hot topic.
What was that statement?
Is it self-deprecating humor and a funny joke?
Or is it inconsistent with the reality in Jpana with a long-term economic stagnation and high inflation?
Instead, it could be a black humor that does not look directly at the Japanese economy?
What do you think?
News that Bank of Japan Governor Ueda joked in English at the ECB Summer Economic Forum in Portugal has been reported in several media¹²³. His remarks were self-deprecating humor about Japan's monetary policy and economic situation, and are said to have caused laughter from the audience. For example, there was the following statement.
- Regarding the cause of the recent depreciation of the yen, he said, "Currency values are also affected by external factors." It made an impact," he said.
- Regarding the period until monetary policy is effective, he said, "25 years ago when I served as a deliberative committee member of the Bank of Japan (to decide the policy interest rate), the policy interest rate was 0.2% to 0.3%. Now it is minus 0.1%. It looks like it's going to be at least 25 years," he said.
- Regarding the situation in Japan, where digital transformation is particularly slow, "Other central banks said they would promote something like a digital currency. On the contrary, we will launch new banknotes next year to increase trust." I think,' he said.
- When asked if he was stressed, he said, "I never thought I would have so many business trips and press conferences (becoming central bank governor)."
These remarks can be seen as self-deprecating humor and laughable jokes, but they should also be seen as black jokes that do not look squarely at the Japanese economy, which is facing a severe trade-off between long-term economic stagnation and stagflation. You can also In any case, Governor Ueda has a realistic understanding of Japan's economy and monetary policy, and I believe he was trying to show his confidence and leeway by making it a joke. Also, I believe that he tried to raise the image and credibility of Japan in the eyes of foreigners by speaking confidently in English.
(3) But he is good at English and can use it perfectly
Former Fed Chairman Greenspan has been a maestro for almost 20 years
Although he "ruled" the international financial markets,
In 2008, his reputation fell to the ground with the “Lehman Shock”.
Even if the English of Bank of Japan Governor Ueda can be appreciated,
Will it follow in the same footsteps as the master Greenspan?
"Overconfidence" peculiar to bubble psychology
A typical example of falling into "cognitive disharmony"
Isn't it wiser to look?
Former Fed Chairman Greenspan reigned as a maestro in the international financial market for about 20 years, but his reputation fell to the ground after the Lehman Brothers bankruptcy in 2008. Critics say that his monetary policies and statements have led to the expansion of bubbles, deregulation, and aggravation of financial crises¹².
For example, the following points have been pointed out.
- In the late 1990s and early 2000s, the Fed did not raise interest rates, or even lowered them, in order to curb the Internet and housing bubbles, which contributed to overheating and destabilization of the market.
- Warned of a “deflation crisis” in 2002 and continued low-interest-rate policies, encouraging risky investments such as mortgages and financial derivatives.
- Increased the fragility of the financial system by praising “financial innovation” in 2004 and supporting deregulation of subprime loans and securitized products.
-In 2005, he underestimated the bursting of the bubble and its impact, saying that the housing market would land.
From these points, former FRB Chairman Greenspan can be viewed as having fallen into the "overconfidence" and "cognition disharmony" peculiar to the bubble mentality. However, in his memoir, A Time of Turbulence,³ he reflects and defends his own monetary policies and statements. He claims that:
- Bubbles cannot be predicted with certainty in advance, and it is socially and economically undesirable for the central bank to burst them. It is important to minimize the damage after the bubble bursts.
- The crisis of deflation was real and low interest rate policy was essential. Financial innovations such as subprime loans and securitized products have contributed to economic growth and social welfare, and deregulation has also increased market efficiency and competitiveness.
- The collapse of the housing market and its consequences was an unexpected event that could not have been dealt with by central banks alone. The Lehman Shock was caused by the failure of the government and financial institutions to respond.
As mentioned above, former Fed Chairman Greenspan argues that he had consistent theory and practice in his monetary policy and statements. However, there is also deep-rooted criticism that his theories and practices are responsible for the occurrence and aggravation of the financial crisis. It can be said that BOJ Governor Ueda is being tested to see if he can learn the lessons of former Fed Chairman Alan Greenspan.
¹: Will the history of inflation repeat itself? Now is the time to learn from Greenspan...
https://bookplus.nikkei.com/atcl/column/040100018/041300008/
²: Greenspan's Lessons for Next Fed Chair - Nikkei Business Electronic Edition
https://business.nikkei.com/atcl/report/16/071400054/110600043/
³: Turbulent Times (Top) (Bottom) - Alan Greenspan
https://www.nikkeibook.com/book/9784532355500/
Source: Conversation with Bing 7/3/2023
(1) ``Greenspan'' book review The ``master who was not a man of action...'' https://book.asahi.com/article/12378355.
(2) Will the history of inflation repeat itself? Now is the time to learn from Greenspan.... https://bookplus.nikkei.com/atcl/column/040100018/041300008/.
(3) Greenspan's Lessons for Next Fed Chair - Nikkei Business Online Edition. https://business.nikkei.com/atcl/report/16/071400054/110600043/
④ This concludes the schedule for this week.
Please refer to the reprint from the Nikkei website that was uploaded this morning.
Let us kick-start a lovely new week smoothly, folks!
Dear readers,
Have a great week!
Tomo Nakamaru
Former World Bank Economist
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