Japan Faces Serious Energy Challenges Amidst More QE

As the Bank of Japan (BOJ) announces its seventh — or is it eighth? — round of quantitative easing, the commodity and stock markets go through a mini-blip in celebration…and yet we ask, should they?

Previous Japanese QE moves have achieved very little, and this may be intended as no more than a rather blatant attempt to weaken the yen and give hard-pressed exporters a bit of help.

An interesting article in the FT explores the state of the Japanese economy by initially looking at its power industry. And it’s no secret that Japan’s power policy is in a mess.

The country has worked hard since the oil shock of the 1970s to grow electricity consumption more slowly than GDP, improving efficiency and reducing emissions.

Previously, the government had promised a 25 percent cut in greenhouse gas emissions compared with 1990 levels by 2020; now, it is aiming for just 5-9 percent reduction by that date, following the closure of all but two of its nuclear reactors.

The rapid shift from pro-nuclear to anti-nuclear has come at a huge cost, as the country lost some 30 percent of its generating capacity and has had to make it up with fossil fuels.

The FT says utilities are paying billions of dollars more for natural gas and oil and emitting 30 percent more greenhouse gases; Japan’s trade balance has fallen into deficit, a shock for an economy used to buoyant net exports; and a 40-year national project to reduce Japan’s dependence on foreign fuel is in tatters.

Nobuo Tanaka, former executive director of the International Energy Agency, is quoted as saying, “This could be a turning point for Japan, the confidence of financial markets could be lost for government bonds and the yen.”

Since the financial crisis of 2008, Japan and the yen have enjoyed a safe-haven status, keeping borrowing costs near zero, but making the yen too strong for Japanese manufacturers.

What good is Japan’s latest QE?

To be continued in Part Two.

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