For any long-time reader, my interest in the fate of the Japanese economy is not a secret. And the most recent data point, that the trade deficit continues to shoot up, bolsters my thesis that things will not end well.
Let’s take a step back. Prime Minister Shinzo Abe rolled into office on an agenda that would help Japan out of its deflationary funk and grow the economy. Although multi-pronged, the main tool has been a Central Bank willing to buy $75 billion per month in assets in order to generate inflation, exports and wage growth. So far, the results have been underwhelming. Last November, the USD/JPY cross was in the high-70s, it is now at about 100. And with that, none of the good stuff has really followed. Sure, corporate profits are up, but inflation is up as well. And not the good kind that economists always promise, but the one where wages are stagnant and energy and food costs are higher.
Anyway, back to the latest piece of evidence in the case for an economic implosion in the land of the rising sun. Exports rose 11.5% YoY in September, but that is actually a loss in real terms when the currency depreciation is factored in. Add to that that, imports also rose 16.5% YoY and one is left with the worst September trade deficit ever, the same story as the preceding 4 months. And even with higher corporate profits, much of it is being made overseas and the revenues are not being repatriated.
So, I think the path is clear, even as most people continue to look for the silver lining. I am inclined to put on a Yen short with more verve. It strikes me as the trade that will keep on giving.
