Asta Pravilonytė

Every manager can call him or herself a good strategist if he or she only works within an environment that is favourable; however, it is only in times of stress that one truly learns what one's capabilities are!

















Monday, 7 January 2013

The goal to reverse prolonged deflation and yen appreciation is a declared focus of a newly appointed Japanese Prime Minister Shinzo Abe. However, according to the minutes of the Federal Reserve Board and the Federal Open Market Committee published on January 3, 2013, several members expressed concerns that continuing purchase of mortgage backed securities ($40 billion per month) and purchase of long term Treasury securities ($45 billion per month) would contribute to the maximisation of employment and price stability. Consequently, the suggestions to slow down or stop the programme before the end of 2013 were discussed. Decisions on monetary policies are left to the discretions of the national central banks; however, the opposite policies may contradict the reliability of Japan-US alliance.
Shinzo Abe, the leader of Japan's Liberal Democratic Party, together with a new coalition Cabinet, formed on the 26th of December in 2012, committed to revive economy through bold monetary policy measures, flexible public funding policies and growth strategy which encourages private sector investment. The new government also promoted endeavors to accelerate the reconstruction of the Great East Japan Earthquake, restore national security as well as improve education and sustainable social security systems. However, despite the domestic interests, commercial concerns, as usual, go far beyond territorial influence.
According to the statistical data of Bank of Japan published on 10 December, 2012, Japanís international investment in debt securities amounted 210,574 billion yen in 2011 which comprised 36 percentages of total invested international assets. The liabilities in international debt securities comprised 91,639 billion yen those made 29 percentages of total invested international liabilities in 2011. Thus, falling Japanese yen against major foreign exchange currencies may increase assets' value; however, the increase in incomes depends on the structure of foreign and domestic assets and liabilities.
Analysing direct international investment in 2011, the biggest amounts were allocated for wholesale and retail industry as well as finance and insurance industry. According to the statistics, 5,334 billion yen were invested in Central and South American finance and insurance industry; 4,796 billion yen were allocated in North American wholesale and retail industry and 4,700 billion yen in North American finance and insurance industry. The total amount of investment in European finance and insurance sector was 3,131 billion yen. Direct investment in Asian finance and insurance industry comprised 2,714 billion yen and 2,163 billion yen were allocated in Asian wholesale and retail sector. The other significant investments were made in chemicals and pharmaceuticals industry as well as electric machinery and transportation equipments based in US, China, and Europe in 2011. 3,208 billion yen were allocated in US, 2,236 billion yen were invested in Europe and 1,566 billion yen were spent in Asian chemicals and pharmaceuticals industry. Additionally, 2,557 billion yen were invested in Asian electric machinery and 2,810 billion yen were allocated in Asian transportation equipments sector. 1,933 billion yen were invested in North American electric machinery industry and 1,848 billion yen in North American transportation equipments. 1,659 billion yen were allocated in European electric machinery sector and 1,871 billion yen in European transportation equipments. Similarly to international portfolio investment, devaluated domestic currency may increase the value of assets; however, higher returns on direct international investments also depend on structure of incomes and costs.
So, due to high international commercial relations it is difficult to measure benefits and loses of devaluation of domestic currency. Moreover, monetary policies may hardly replace structural reforms and aggressive economic growth may end with even higher debt obligations.










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