HONG KONG, Oct 29 (Reuters) - Markets are becalmed as they await the Fed meeting later this week. And the great data disruption the U.S. government shutdown created has begun to abate, but is yielding only mixed signals so far, with U.S. industrial production up but pending home sales down.
Japan woke this morning to new data on unemployment, retail sales and household spending, providing potential clues as to whether the public has bought into Abenomics. While the employment picture was unchanged, household spending bounced upward more strongly than expected, seemingly giving Prime Minister Shinzo Abe a vote of confidence despite plans to raise a tax on that spending next April. If consumers believe Abenomics will produce inflation, the logic goes, they’ll start buying today to avoid higher prices tomorrow.
Abe may claim the data as vindication for a recovery plan that so far seems to be buoying exporters with a weaker yen, but that sceptics say hasn’t removed structural barriers to growth, or generated a convincing recovery in domestic corporate investment.
But improved consumer spending may be a red herring. An economist would tell you that the prospect of a consumption tax increase next April - to 8 percent, up from 5 percent - is virtually guaranteed to help untangle consumers’ purse-strings. They’ll start stocking up on items they’d rather not pay 3 percent more for next spring.
China’s new leaders may unwittingly be providing Abe with the next “arrow” for investment and growth. Beijing, keen to demonstrate its nationalist credentials with a public coping with slower growth and potentially painful reforms, has embarked on a strategy of probing Japan’s sprawling archipelago with planes and ships, presenting Japan’s feeble self-defence forces with the maritime equivalent of whack-a-mole.
Eventually, Japan will have to either stop defending territory that China also claims, or direct its government stimulus spending into beefing up its military’s ability to defend unpopulated outcrops in the East China Sea.
That would play into the nationalist leanings of Abe’s party, the Liberal Democratic Party, and the right-wing of its support base. And big defence outlays would, it has to be said, be good for growth, regardless what side-effects they may ultimately have on peace in the Pacific Rim.