In one of the preliminary documents leading to Australia’s Financial System Inquiry, authors speculated that the plenitude of overseas financing for Australia’s current account might owe to divergent risk preferences between domestic and foreign investors (no supporting evidence or parameter calibration was cited). Anecdotally, yet consistently with this viewpoint, many players within the domestic financial sector tout about the supposed conservatism of Australian domestic investors. But is there empirical…
Viewing Australia as a structural risk haven remains a popular (though not necessarily sound) argument with Australian domestic media. Admittedly, there has been a visible flight from erstwhile “risk-free” assets in other areas (such as the Eurozone) to AAA-rated Commonwealth bonds (see charts below). Granted, Australia’s fiscal position is comparatively moderate among the majority of larger developed economies. But Australia’s central bank itself recognizes the idiosyncratic nature of risk-haven flows…
[Updated 18 Nov] Third quarter GDP: The Q3 release was a disappointment with regard to expectations, yet provided an excuse for PM Abe to delay a consumption tax hike planned for October 2015. The estimated future impact on GDP, at best, involves guesswork. Yet implications on commitment to fiscal discipline are of greater concern. Read full article
The Asia Development Bank Institute notes that China is the only country that has made internationalization of its own currency a national policy. In practice however, it appears that China is approaching internationalization in reverse. Why has China gone this route? Click here for full article
Given the need for post-GFC deleverage within the United States, a large portion of the recent glut of liquidity has found havens outside the US, and the search for yield, coupled with low volatility enhanced the attractiveness of emerging market and high yield assets. Some of these will be more vulnerable to liquidity withdrawal than others: Read full article
What is NAIRU? Not a travel destination for Angelina Jolie. NAIRU is a regular feature of inflation forecasting models in use at a number of central banks. Whist recently out of favour with the BOJ, re-examining the relationship between unemployment and inflation expectations could prove fundamental to the first “arrow” of Abenomics, monetary policy. click here for full article
During our recent Japan visits (23 May – 8 Jun), we held discussions with policy-makers, private sector corporates and investors, academics and think tanks, alongside our participation in the Roundtable Japan conference. We provide below summary highlights of our key observations following the trip
At the roundtable Japan conference on 7 June, the group led by Naomi Fink compiled a rough roadmap to promote greater female participation and leadership in the Japanese workforce, based on the assumption that greater participation would bolster Japanese productivity, and greater female leadership would provide incentives for highly performing women to remain in the workforce. Fink compiles these recommendations here.
Markets might come under pressure short-term this quarter as Japan implements its consumption tax hike, but the hike on its own is unlikely to tip Japan back into recession. So long as there is no new crisis brewing on the horizon (as was Asian crisis as Hashimoto implemented his1997 consumption tax hike to 5%), there is a good chance that Japan’s tax hike will be yet another piece of the puzzle that lends Abe the credibility to enact Japan’s holy grail of policy reform – Abe’s “third arrow” of structural reform.