Exports climbed 6.4 percent in January from a year earlier, the first rise in eight months, exceeding the median 5.6 percent estimate in a Bloomberg News survey of 24 economists. Imports increased 7.3 percent, the Finance Ministry said in Tokyo today.Weakness in the yen that aids exporters such as Sharp Corp. and Sony Corp. also means the country pays more to import fossil fuels needed as nuclear reactors stand idle after the Fukushima crisis in 2011. That burden may encourage the government to limit the currency’s slide, with Deputy Economy Minister Yasutoshi Nishimura signaling in a Jan. 24 interview that the government may prefer a yen stronger than 110 per dollar.
The immediate consequence of his browbeating the central bank was a 16.9% plunge in the yen since September 27. The catch is that 18% of Japan’s exports go to China, where components made in Japan are assembled into final products. That could lower the input costs to Chinese manufacturers and increase their competitiveness. Higher import prices in Japan could depress consumers' spending by lowering their purchasing power. By far the biggest catch is that Japan’s numerous governments have tried massively stimulative fiscal and monetary policies for over two decades that all obviously failed to work.
The much-talked-about advantages which devaluation secures in foreign trade and tourism are entirely due to the fact that the adjustment of domestic prices and wage rates to the state of affairs created by devaluation requires some time. As long as this adjustment process is not yet completed, exporting is encouraged and importing is discouraged. However, this merely means that in this interval the citizens of the devaluating country are getting less for what they are selling abroad and paying more for what they are buying abroad; concomitantly they must restrict their consumption.
Abenomics is targeting higher inflation. But does the government really know what will happen if inflation hits 3-4%? Hard to believe that the Japanese public will want to own 20-year government bonds yielding 1.75%. At current interest rates, Japan spends 25-30% of its tax revenues on debt payments; what would happen if yields double or treble? The effect would dwarf any improvement in tax revenues that would flow from a revived economy.