Ad Hoc Commentary – investment-less Abenomics

As we mentioned some time back:
“…Pundits are still optimistic on Japan Inc investing within Japan. But yours truly believe that CEOs of Japan Inc will first want to see better policies on Sino-Japan geopolitics, nuclear energy, aging demographics and the sovereign debt burden before investing at home. These are issues which cannot be solved by simply opening/closing the monetary spigot as Abenomics would like us to believe. If only economics were that simple…”

Today, the reality is hitting home as BOJ tankan survey showed:
“…Big firms expect to increase capital spending by just 0.1 percent in the new financial year starting this month, compared with a median market forecast for a 0.2 percent rise — a marked slowdown from a 3.9 percent increase in planned spending for the fiscal year that ended in March…”

The optimist would likely say that we tend to get upward revisions in the following Jun survey. Yours truly is not so optimistic. Japan’s problem is much more structural and playing with monetary spigots is not going to change Sino-Japan geopolitics, restart nuclear plants, or make the population younger. Perhaps all Abenomics did so far was to kick the can down the road for the JGBs (Japanese Government Bond):
“…The tax increase is designed to address Japan’s large public debt, but is also seen as a critical test of the expansionary policies promoted by Prime Minister Shinzo Abe….”

Let us hope that the third economic arrow of Abenomics that had so far failed to impress the markets will not be followed by a fourth militaristic arrow. All throughout history, whenever the economy does badly, there is a tendency for the ruling elite to distract the populace through a common external enemy. War is the ultimate distraction for the masses from their daily drudgery. For example, yours truly believes that the North and South Korean recent exchange of live fire is not because the young North Korean dictator is craving for America’s attention:
“…Victor Cha, a leading Korea analyst, told CNN that the North may be “posturing” for attention in hopes bringing Washington back to talks over its nuclear program — or moving while the United States distracted by other global events…”

It is more likely that the economic situation had deteriorated in the North and the young dictator needs a distraction for the suffering people. It is probably presumptuous to think that the young Kim is just an immature spoilt brat.

Good luck in the markets.