Sunday, January 20, 2013

Japan ups the ante in East Asia

There is no time to waste for Japanese Prime Minister Shinzo Abe as he makes his Asean tour, covering Vietnam, Thailand and Indonesia. By all accounts, Abe is a hawkish veteran, recently regaining power with a popularity rating of 62-63 per cent among his party's supporters. Among conservative Japanese he is seen as an answer to Li Jinping of China.
Abe is preoccupied with two issues - reviving the ailing Japanese economy and strengthening Japan's security amid the rise of China. Both policies have drummed up nationalist sentiment.

The Japanese economy contracted in the third and final quarter of last year. Abe will simultaneously undertake fiscal, monetary and exchange-rate policies to perk up the economy. His administration will be pouring some US$171 billion in fiscal stimulus into the economy. Abe has signalled to the Bank of Japan (BOJ) that he would like to see an ultra-easing monetary policy to combat a decade-long period of deflation. The 0 per cent interest rate will remain intact for a long, long time.

The BOJ has been periodically printing money since 2003, but to no avail. The Japanese economy has remained sluggish. Japan's domestic prices have yet to reach the level of 1985. The BOJ will now be taking even bolder action by monetising the government's debt and doing everything to raise the inflation target to 2 per cent. Now, inflation is hovering around 1 per cent.

The yen, which is trading at around 87-88 to the US dollar, is set to weaken further under Japan's version of quantitative easing (QE), with 100 yen to the dollar as a probable near-term target. Japan's QE amounts to a declaration of a currency war, for its QE will ignite a carry trade, allowing banks and global funds to borrow cheap yen to speculate in the financial markets and drive up commodity prices.

The BOJ is closely following on the heels of the US Federal Reserve in launching this global currency war. The US Fed has set its sights on similar targets - boosting inflation to 2.5 per cent and bringingunemployment down to 6.5 per cent. The US Fed's zero interest rate will be kept until at least 2015, if not forever.

By embarking upon QE, the two major central banks of the world - not to mention their accomplice, the Bank of England - send the warning signal that they have run out of tools to revive their economies and that nobody can stand in the way of their money printing programme, which will export runaway inflation to the world.

Late last year, the Hong Kong dollar came under sustained attack, with the global funds' aim of ripping apart the currency board. The ultimate target is to export inflation into the already slowing Chinese economy to complicate China's macro-economic management.

The Thai baht has become another currency proxy in the region. The baht was attacked in 1997 to create a region-wide financial crisis. Now it has, again, become a favourite target for attack, though the direction is a reverse of 1997 because the current round of baht buying is aimed at increasing its value. The baht has strengthened by 3 per cent since the beginning of this year - the greatest appreciation among the regional currencies. As a result of capital inflow, we are beginning to see signs of stock market and real estate bubbles - signs that officials deny exist.

On the security front, Japan has mounted an equally strident diplomatic and foreign policy offensive. Between January 9 and 14, Fumio Kishida, Japan's foreign minister, visited the Philippines, Singapore, Brunei and Australia. On January 4, Taro Aso, Japan's deputy prime minister and finance minister, paid a visit to Myanmar. Abe's visit to Vietnam, Thailand and Indonesia will end the sweeping East Asian tour within the space of one month.

On the surface, Japan would like to bolster its economic and political relationship with its Asian neighbours - whom it has failed to provide leadership for after all these years. But now it is different. With the rise of China and the more aggressive stance of North Korea, Japan needs its neighbours to back it up in the event of a confrontation with China or North Korea.

Without doubt, Japan is a proxy of the US in Asia. Ultimately, China will step up to face the US, which is embarking on a policy to contain it. Japan thus serves as a proxy in this wider global conflict.

Thailand is now being dragged into this broad alliance against China. Conflicts in the East China Sea and the South China Sea have been cooked up to serve the global superpowers' interest to create a theatre of war in this region. The wider conflict could move from the Middle East to Asia if the Asian countries don't come to terms with each other. Abe's visit to Thailand carries far-reaching regional security implications. Prime Minister Yingluck Shinawatra's female touch proves to be useless in this power play by the global superpowers.The Nation, Bangkok

No comments:

Post a Comment