Japan: Does Anybody Get It Here?   

• The recent rescue package for Citigroup only underscored what Hank Paulson was quoted as saying, i.e., “there is no playbook for responding to turmoil we have never faced”. The US Fed and Treasury keep pulling rabbits out of the hat in a desperate effort to keep the US financial system from imploding.
• The US government and its agencies have to date committed over $7.76 trillion in throwing everything but the kitchen sink at the problem. That works out to $24,000 for every man, woman and child in the U.S., versus a per capita U.S. GDP in 2007 of $46,000. This will undoubtedly dig a very deep fiscal hole that the US will be digging out from for many, many years, the world will consider itself lucky if this does not create a crisis in the US dollar.
• In no position to gloat about the US problems, Japan could be headed for a record four quarters of shrinking output. While Japanese politicians talk about “a once in a 100 year storm”, inaction by the Bank of Japan and the Aso Cabinet leave one seriously doubting if Japan’s movers and shakers really do “get it”.
• When six of the world’s central banks moved in tandem to lower rates, Japan was not among them. While the BOJ was privy to the planned action, Japan’s government was clueless until just before the fact as the BOJ apparently did not see the need to inform the Japanese government.
• Yet two weeks before the coordinated rate cut, the Japanese yen had already surged through JPY100/USD, pushing Japanese stocks to their lowest point since the bubble burst. The BOJ pretends it has no room to maneuver and portrays deflation as some sort of natural disaster that can’t be helped. The MOF and the LDP-led government are just as clueless in “coming up with the wrong answers to the wrong questions”.
• This notwithstanding, Japanese stock prices, supported by domestic individuals and pension funds, appear to be coming to terms with this “once in a 100 years” storm despite wholesale dumping of Japanese stocks by foreign investors. At the end of the day, Japanese companies will learn to cope despite government bungling.

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