Japanese monetary growth continued to pick up in October, suggesting an improving economic outlook and questioning the necessity of the Bank of Japan’s latest QE expansion.
As previously discussed, six-month growth of all the published aggregates slumped during the first half of 2014, warning that economic weakness following the April sales tax increase would be greater than the consensus expected. Money growth, however, has staged a V-shaped rebound since July – see first chart.
The real-terms turnaround has been larger, with the six-month rise in consumer prices, seasonally adjusted, falling sharply in October as the sales tax effect dropped out. Real money trends are signalling a return to solid economic expansion by early 2015 – second chart.
US real narrow money growth surged from late 2013 even as Japanese growth turned down, suggesting that the US economy and equities would outperform. The US / Japanese real money growth gap has narrowed sharply since mid-year, almost closing in October* – third chart.
*October partly estimated.
