Japan’s potential GDP growth is estimated at 0.5%. That is what the Bank of Japan tells us in its October report on the outlook for growth and prices. It has downgraded its growth estimates for the current fiscal (2011-12) and 2012-13. Simultaneously, it has also lowered its inflation projections. No surprises that it chose to boost the purchase of Japanese Government Bonds (JGB) with additional 5 trillion yen. However, it is no match for the ‘wall of money’ that Mr. Sarkozy is happy about, in Europe. The yen would strengthen further unless Bank of Japan sheds its reluctance to match its Western allies in running the printing press.
The financial market exuberance has been extraordinary. They are clearly living for tomorrow. The immediate crisis in Europe appears to be handled. US economy has bounced back or at least pockets of it appear to have. There is not only plenty of liquidity to go around but there is promise of more in the pipeline. What? Me? Worry?