Key points: - Trump’s dilemma is that withdrawal from NAFTA and high tariffs against China would cause enormous dislocation for American firms producing in the US; 40% of all US imports from Mexico consist of US content embodied in Mexican-assembled of Mexican-finished goods - US exports are highly dependent on imported inputs, e.g. a fifth of every dollar of manufactured exports consists of foreign inputs - US production of manufactured goods in general, and transport equipment in particular, are highly dependent on imported parts and supplies - The countries that send these goods to the US, whether it be Mexico or China or Canada, are themselves part of intricate international supply chains in which their exports contain lots of foreign content, including US content - The global ripple effects from a trade war would be enormous
FMI’s review of the latest Weekly UI Claims & Rail Traffic results.
Key points for Richard Katz's TOE Alert include: - Stock prices fell 5% on Tuesday and another 2.4% Wednesday morning to the lowest level since Kuroda’s “monetary bazooka” of October 2014; - The yen stands at ¥114.6/$, the strongest level since October 2014; - Yields on JGBs out to ten-year maturity are now in negative territory, for the first time; - Banks, pension funds, insurers all invest heavily in JGBs; - Banks have already made big cuts in the rates they pay depositors, but are not expected to go into negative territory for households or SMEs; - All this means a squeeze on earnings at banks, insurers and pension funds
We’re no experts on stock markets, but it does occur to us that the gyrations of Japan’s stock prices over the past six months may say less about the fundamentals of Japan’s economy than about the ups and downs of sentiment on all four of the major bourses in rich countries: the Nikkei 225, S&P 500, FTSE (London) and DAX (Frankfurt).
We pointed out in our Nov. 16 Alert that Japan’s GDP has grown at a mere 0.6% annual pace in the nearly four years since early 2012,but our gut feeling is that the BOJ’s figure is too pessimistic, and the purpose of today’s Alert is to explore that question.
In our Alert of Nov. 18, we began looking at whether Japan’s potential growth is really as low as the 0.5% rate asserted by the Bank of Japan (BOJ)? Our gut feeling is that the BOJ is too pessimistic and that potential growth is more likely around 0.8%-0.9%, more or less the same as for the last quarter-century.
Japan’s productivity growth faces two challenges from the labor side: a demographic crunch in which each worker must finance the livelihood of more retirees and an erosion of the skills of the labor due to the rise of non-regular workers to 37% of the labor force.
By one measure, deflation, like the swallows at Capistrano, has returned to Japan. According to the official target of the Bank of Japan (BOJ)—the consumer price index (CPI) except for fresh food—prices fell -0.1% in August from last year. This is the first time Japan has seen deflation since April 2013.