It's alive! Japan's economy booms (not really)
- Japanese third quarter GDP was revised down significantly. Simultaneously, the economy is over JPY 31 trillion larger, and debt and deficit ratios (compared to GDP) fell. Abenomics can take credit for the weak third quarter. Accounting rule changes added the JPY 31 trillion. Accounting rule changes do not improve anyone's standard of living.
- Today is the day that Draghi finally gets to indulge his passion for easing policy. We expect the ECB to announce an extension of the quantitative policy program. Whether an economy with rising GDP, rising employment and rising inflation needs more quantitative policy is a different question.
- We believe that this is the final time Draghi is allowed to ease – with 2017 inflation forecast close to the ECB target, further easing attempts are likely to be blocked; we expect bond buying to be scaled back. It is difficult to signal that in advance, however.
- Media reports suggest Trump is sympathetic to attempts to "reform" the Fed. There has been no tweet on this, but investors need to take this seriously. Adopting a rules-based approach to policy at a time of significant structural change risks perverse outcomes. Quantitative policy makes undermining Fed independence very risky.