Abenomics

Michael Darda: How is Abenomics Doing?: “Leading indicators in Japan have been on the upswing…. Abeonomics is working. One reason that the previous round of QE in Japan didn’t lift growth much is that it was expected to be temporary and proved to be temporary as occasioned by a 20% collapse in the monetary base in 2006. This time, however, at least part of the increase in the base is expected to be permanent, hence the new 2% inflation target. In short, the BoJ has to do enough to satiate a broad money demand function that has been growing 2-3% per annum…. Reflation should help to ease Japan’s debt and fiscal burden… restoring at least moderate NGDP growth should help Japan’s budgetary fortunes. This is one reason that the rise in Japan’s inflation breakeven spreads has been inversely related to credit default swap spreads on Japan’s debt. Broad money growth in Japan has begun to recover convincingly, which should also be bullish for the equity market…. We believe Japan equities have 20-40% upside…”

(via DeLong)