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3 Jun 2015
JPY prospects point to further depreciation – Rabobank
FXStreet (Edinburgh) - According to Strategist Michael Every at Rabobank, the door remains open for further downside in the Japanese currency.
Key Quotes
“Fundamentally, what needs to change for Abenomics to really work is a rise in real incomes”.
“These continue to plunge, as although the BoJ has (temporarily) succeeded in creating inflation via currency devaluation, with the help of the sales tax rise too, this is simply not being met with matching wage increases regardless of the low level of unemployment: in short, Japan is discovering that in the ‘new normal’ the Phillips curve is broken, with most new jobs being created tending to be temporary, part-time, and/or poorly paid; they cannot bid up wages, and only exist because of low wages”.
“As such, the BoJ plan of “push up inflation to generate wages” cannot succeed, as what is needed is a strategy of “push up wages to generate inflation”.
“Indeed, as April showed, CPI is now back to just 0.6% YoY headline and 0.4% core, well short of the BoJ’s 2.0% target: will real wages now spring forward? We shall see, but the record elsewhere is not encouraging – and JPY continues to sink”.
Key Quotes
“Fundamentally, what needs to change for Abenomics to really work is a rise in real incomes”.
“These continue to plunge, as although the BoJ has (temporarily) succeeded in creating inflation via currency devaluation, with the help of the sales tax rise too, this is simply not being met with matching wage increases regardless of the low level of unemployment: in short, Japan is discovering that in the ‘new normal’ the Phillips curve is broken, with most new jobs being created tending to be temporary, part-time, and/or poorly paid; they cannot bid up wages, and only exist because of low wages”.
“As such, the BoJ plan of “push up inflation to generate wages” cannot succeed, as what is needed is a strategy of “push up wages to generate inflation”.
“Indeed, as April showed, CPI is now back to just 0.6% YoY headline and 0.4% core, well short of the BoJ’s 2.0% target: will real wages now spring forward? We shall see, but the record elsewhere is not encouraging – and JPY continues to sink”.