Policy tweak by Bank of Japan

Andy Mukherjee has a good piece on why BoJ might need a rethink. Its unconventional monetary policy is rendered ineffective by their effect on the banks that are supposed to implement the policy by lending aggressively! Bank profitability is at risk. They can make money only by taking on more risk in distant lands. There is simply no ‘Net Interest Margin’ at such ridiculously low interest rates. American banks’ RoA is far better, as Andy writes. Why would investors prefer Japanese banks?

Read Andy Mukherjee’s column here.

The Bank of Japan (BoJ) has released its monetary policy statement and it is here. As far as I can tell, it does not address the issue/risk raised by Andy Mukherjee. If anything, it reflects a foolhardy/brave ‘no mud on my face’ attitude after falling flat with its current policies.

It has basically tried to ‘reassure’ markets that there is no tapering of bond purchases – stealth or real. It has doubled down on its current policy stance.

That, despite all these years of powerful and persistent qualitative and quantitative easing, the inflation target remains as elusive as ever:

Prices have continued to show relatively weak developments compared to the economic and employment conditions…and it is likely to take more time than expected to achieve the price stability target of  2 per cent.

It is even possible to question if the appropriate price stability target for a population with negative demographic impulses and potential growth of 0.0% is something lower than 2.0%.

Of course, as Andy points out in a private change, there appears to be two tiny but may be significant tweaks. They may be deliberately underplaying them and overplaying continuity to ‘reassure’ markets:

(1) Yields may move upward and downward to some extent mainly depending on developments in economic activity and prices.

(2) The Bank (BoJ),  …., will reduce the size of the ‘Policy Rate Balance in financial institutions’ current account balances at the Bank – to which a negative interest rate is applied – from the current level of about 10 trillion yen on average.

Third, it has also agreed to increase the purchases of of ETFs linked to Topix stock index than Nikkei 225.

On the announcement of BoJ monetary policy decision, the US dollar spiked against the Japanese yen. Some profit-taking has set in now. On a one-year basis, US dollar is trading at the upper end of the range; on  a two-year basis, the US dollar is trading at the upper end of the range; on a five year basis, in the middle of the range (95-125) and on a ten-year basis; closer to the upper end of the range (75-125). The risk is that the USDJPY trades closer to the upper end of recent ranges at all horizons.

That may draw Trump’s ire and he may direct it at the Federal Reserve for doing the right thing (even if only gradually and belatedly) because others are persisting with their wrong and non-working policies!

How to revise GDP and other links

(1) American economy is now USD20.0 trillion and change. The personal savings rate is 6.8%. It was 3.2% before revision. Just like that. Investments in Cloud technology were allegedly under-reported. India was one of the few countries or is it the only country that revised its GDP calculations and the base year from 2004-05 to 2011-12 and reported a lower number.

See for yourself:

India GDP

(2) I liked this article that appeared in Wall Street Journal – by one Donald Luskin. He now writes as to why China will lose the trade war. That is a far cry from what many thought when the trade war began. It is not over yet. But, clearly, people are revising their odds.

(3) China is issuing dollar denominated bonds in record amounts. Nine years ago, they called for the end of US dollar hegemony. [Link]

(4) Mark Mobius says that the bottom is not in for China stocks. I leave it to you to decide on how to play it. [Link]

(5) China’s old economy is back [Link]

(6) Which means leveraging is back too [Link]

(7) FT Editors think China will listen to their advice on how to conduct Belt and Road initiatives. I am just wondering how will they have written the Edit had Trump launched OBOR and it is courting the controversies that China is courting now. [Link]

(7) Covenant-lite Leveraged loans (double whammy) are now 78% of all leveraged loans. They were 29% in 2007. [Link]

(8) Support for Merkel’s German Conservative coalition has dwindled to a 12-year low. Wait and wathc happens by the time she leaves office. [Link]

(9) That is a nice headline that explains everything that is happening in the world:

Australia executive pay hits record as workers’ wages stagnate [Link]

(10) This is what will happen in that case:

Royal Mail faces shareholders’ pay revolt [Link] AND

Nex shareholders’ punchy payday protest [Link]

(11) This may be three weeks old but Malaysia is abandoning white elephant infrastructure projects. I must confess to being pleasantly surprised so far with Malaysia’s new government [Link]

(12) This article offers a good assessment of Pakistan even as it wonders if OBOR projects have pushed the country into a debt trap.

(13) Good to know that Australian Parliament has passed two sweeping foreign interference and anti-spying  Bills [Link]


Singapore shows the way

Macroprudential regulations are of limited effectiveness without interest rates lending support. In other words, monetary policy and macroprudential policy cannot work at crosspurposes. Some central bankers might argue that interest rates can be low and macroprudential policies can be deployed to ensure that credit at such low interest rates flows to the productive sectors of the economy and for productive purposes. Sounds elegant and feasible in theory except that I am yet to come across any practical success for a central bank with such an approach.

That is why the hankering after macroprudential by western central bankers and their economists is understandable. They think that they can have their ‘low interest rate’ cake and eat it too. It does not work. Jeremy Stein had said it eloquently in a speech in 2013.

In the case of Singapore, it is different. It is a small, open economy and it is an interest rate taker. It operates monetary policy through exchange rates. Macroprudential policies can work in isolation. Singapore deployed it to good effect in 2013. Real estate prices cooled and transactions tumbled for the next three years. Since the end of 2016, the real estate market began to make a slow comeback.

The amount of pamphlets and invitations to sell or buy one’s apartment complex en-b bloc that get pushed into one’s postbox is proof enough that things were beginning to get out of hand again.

The Singapore government and the Monetary Authority of Singapore decided to intervene again. On July 5, they announced increases in stamp duty and reduction in loan-to-value ratios, etc. Bankers and real estate developers and agents were dismayed. That means that that was the right thing to do.

I write about it in my MINT column today.

Singapore deserves three cheers for this move.

Italy, Europe, Pakistan and the rest

Been six days since I blogged. Was travelling again on May 30-31. Backlog of blogging builds up. So, this one is a potpourry.

Almost done with reading ‘Final hour’ Sir Martin Rees. Recommend it.

Of course, ‘Adults in the Room’ by Yanis Varoufakis remains the highlight of the year in terms of readings completed. He has a fairly sober piece on Germany (Merkel, in particular) being at the heart of the problems confronting Europe. In his attempt to be politically correct, I think, he has finessed his lines.

Paul Krugman has three tweets on the Italian President denying the Italian election winners the right to form the government by denying them their Finance Minister nominee.

But, Yanis makes this interesting point:

Trump understands one thing well: Germany and the eurozone are at his mercy, owing to their increasing dependence on large net exports to the US and the rest of the world. And this dependence has grown inexorably as a result of the austerity policies that were first tried out in Greece and then implemented in Italy and elsewhere.

Today, I heard Raghuram Rajan in Singapore saying that, one of the reasons behind the austerity policies in the UK was (or, could be) that their banks were too big relative to their economies and that the austerity was an accommodation of the demands of such a big banking sector on the government’s fiscal resources. Same goes for Europe. He was not defending this, however. Rajan was delivering the 9th MAS lecture today in Singapore.

Nonetheless, I am not advancing this either as an explanation or justification for the ‘Troika’ to impose austerity – and that too with utter hypocrisy (I am yet to write a full review of ‘Adults in the Room’) – on Greece. Simply recording something I heard today related to the word, ‘austerity’.

Inter alia, UK Government sold some of its stake in the Royal Bank of Scotland at a hefty loss today.

The UK Chancellor of the Exchequer George Osborne has such a massive conflict of interest with what he is doing at the ‘Evening Standard’ that I do not know where to begin. Read this to figure it out yourself. Equally, I am not surprised that Google took up his offer. They should be embarrassed but will they be?

The implications of this story are staggering and overwhelm me. How is India, for example, going to find employment for its youth with or without formal education? Is technology such a holy grail that it should be pursued, no matter what? That is where I find Sir Martin Rees thoughtful and humane. See the beginning of the post.

Prof. Atif Mian at Princeton has a series of fourteen tweets on development, the vicious poverty trap and how public policy and prejudices make it more vicious. First tweet here.

Australia charges Citi and Deutsche Bank for cartel-like behaviour in their underwriting of ANZ shares a decade ago. The authorities have made a criminal charge and that is serious stuff. Banks will be banks, I suppose.

A damning verdict on American universities by Rana Foroohar. They are now hedge funds, she says. Ed Luce wishes she were not right. He concurs.

A powerful way to understand what we (humans) have wrought to the climate. Found it via the twitter handle of Atif Mian.

Gulzar shared this pithy and perceptive blog post by Tyler Cowen on how Trump’s foreign policy might outlast him in America.

This should tell us why Europe has not earned Trump’s respect.

A good summary of Pakistan’s acute ‘Balance of Payments’ situation.

More later.

Stuff that happened

I was at the MINT Asia-HT Leadership Summit held in Singapore on Friday, 13th April. Found Chandrababu Naidu impressive in terms of presenting his views. Of course, he was selling too hard. Nitin Gadkari was disarming and had a smiling disposition. Wish the Indian Prime Minister copied some of that. Tony Blair delivered the keynote speech after lunch. He was impressive. Had a self-deprecating humour. He is partially responsible for the mess that Iraq still is. But, one has to admit that he did come across as a thoughtful guy.

He said that politicians enter office most popular and least capable and leave office least popular and most capable!

He also recalled how Bill Clinton deftly dodged a reporter’s question on whether he was speaking to the next British Prime Minister when he was meeting with Tony Blair, then the leader of the Opposition. Either a YES or a NO would have been bad answers. Clinton was facing his own re-election in 1996 in a few months when this incident happened. He deftly said that he hoped that Tony Blair was speaking to the next President of the United States! That is really on-the-feet thinking and diplomacy.

India’s former foreign secretary Dr. S. Jaishankar made some pertinent observations on the state of play between Asia and West. He said that if Asian nations favoured a multipolar world, they should work towards multipolarity in Asia, to begin with. Second, he said that it might be premature to write off the West. I quite agree with both.

That said, writing this on Saturday, after the ‘surprise’ America-led missile attack again on Syria, one year after the last attack and the last charge that Assad used chemical weapons on his own people, I find myself nodding in appreciation that China has opposed the Western air strikes. As the British MP George Galloway told a reporter, there is no due process. In any case, how can the Western media that criticses Trump at every opportunity suddenly finds something to appove of? In their eyes, how does this one become right? The response of the journalist in this interview to the former British General is simply stunning.

Tucker Carlson of Fox News is worth watching in these two videos.

MarkGB, in his blog, has this explanation as to the real motivation behind the missile attack on Syria:

Of course your government would lie to you, they are lying to you right now. This has nothing to do with saving lives – bombing kills people. This is about preventing the Syrian government regaining total control of the country. It’s about what it’s always been about – breaking the country up, taking the oil, putting the Qatari pipeline through Syria to rival Russia’s dominance of the European oil market. It’s about keeping the region de-stabilsed so that the Apartheid regime in Tel-Aviv can take more of the energy resources in the Golan Heights…and sooner or later…take the water resources in southern Lebanon. [Link]

Asia in the fast lane?

In a piece, he wrote for ‘Project Syndicate’, Prof. Kaushik Basu, former Chief Economic Advisor to the Government of India made the following prediction:

in 50 years, I predict that the world economy is likely (though not guaranteed) to be thriving, with global GDP growing by as much as 20% per year, and income and consumption doubling every four years or so. [Link]

I am happy to take the other side of the bet, if there is one.

But more than that, what caught my eye was this:

From 1500 to 1820, according to data collected by the late Angus Maddison, the world’s annual growth rate was just 0.32%, with large sections of the world experiencing no growth at all….Industrial Revolution, which lifted average annual global growth to 2.25% from 1820 to 2003?

The Angus Maddison database at the website of Groningen Growth and Development Centre did not give me information for the year 1500. Second, it only gave me per capita GDP for individual countries and regions measured in 1990 PPP GK (Geary-Khamis) dollars. The Excel sheet I could download had information starting only from the year 1820 (see link above).

On that basis, world per capita GDP (1990 GK $) experienced a CAGR of 1.27% from 1820 to 2010. Asia’s number 1.26%. For the world, the pre-WW I (1820-1913) growth rate was 0.84% and post-WW I (1913-2010), including the war periods, the growth rate was 1.69%. Double.

For Asia, the difference is more striking. The comparable figures were 0.15% and 2.34%.

It gets even more interesting if one split the data into two periods, 1820-1950 and 1950-2010. For the world, the growth rate in per capita GDP (in 1990 GK $) for the first 130 years since 1820 was 0.84% per annum. For the next 60 years, it was 2.21%.

It is more striking for Asia. The comparable figures are 0.10% and 3.84% respectively. Amazing speed of growth and catch-up. Put it down to Japan and China, post-1950. Roughly, the first thirty years from 1950 was the story of Japan and the next thirty years, it has been the story of China. What comes next? Who comes next?

Singapore weather and climate

Just caught up with the Singapore annual climate assessment reports of 2015 and 2016.



There has been a warming trend over Singapore over a number of decades. The
average rise is 0.25ºC per decade from 1948 to 2015. This is higher than the global
warming rate of 0.12ºC over a similar period (1951 to 2012).

(If one looked at figure 9 on page 7, we would notice that Singapore’s warming trend accelerated from the 1980s. Price to pay for ‘development’)

2015 was the joint warmest and 2nd driest year on record for Singapore. 2015 set new monthly records for the warmest July and December; and tied the records for warmest October and November.

For Singapore, 2015 tied with 1997 and 1998 as the warmest years on record. Eight of the ten warmest years in Singapore have occurred in the 21st century and all have occurred since 1997.

Increasing frequency of warm nights and decreasing frequency of cooler nights. In this regard, 2015 and 2016 were literally off the charts! (See figures 10A and 10B in 2015 and figures 13 and 14 in 2016).

Singapore has a tropical climate which is warm and humid, with abundant annual rainfall of about 2400mm. Generally, the eastern parts of Singapore receive less rainfall
compared to other parts of the island. (Damn!)


2016, with a mean annual temperature of 28.4°C, is Singapore’s warmest year on record since 1929. This is 0.1°C higher than the previous joint record set in the years 2015, 1998 and 1997. All months in 2016 recorded mean temperatures above the 1981-2010 climate normal. With on-going global warming, new record temperatures for Singapore are increasingly more likely. (Oh, well!)

Singapore’s temperature displays a stronger long-term warming beyond average global land temperature. Being a city state, Singapore has been impacted by other human activities influencing the local climate. For example, urbanization cannot be easily identified as it is not possible to measure what the temperature increase would be without the urbanisation effect which is contained within the station network observations. Thus, although greenhouse warming has contributed to the rise in temperature over Singapore, it does not account for all of the increase; urbanization has played a role in the warming over Singapore as well, as measured by MSS’ network of instruments. Most of the additional warming however (when compared to the global warming over land) appears to have occurred in the 1980s and early 1990s.

(One can have a day-long seminar or longer on the meaning and overall costs and benefits of economic growth, urbanisation, etc.).