[LINK] "Japan's Central Bank Is China's Biggest Cheerleader"

[rfmcdonald]

William Pesek of Bloomberg View notes the extent to which the Japanese economy depends on China's, to the extent that a Chinese slowdown could really hurt Japan.

Bank of Japan Governor Haruhiko Kuroda has a new strategy to support his country's listing economy: talking up China's.

It's a marked break with what other Japanese officials are saying. Finance Minister Taro Aso and economy czar Akira Amari have been eager to blame China's slowdown for Japan's woes. It's somewhat surreal to see them urge Beijing to implement economic reforms when they've done nothing of the sort in Tokyo -- and with more time on the job than their Chinese counterparts.

Kuroda, however, is guilty of taking things to the opposite extreme. Speaking in New York, he challenged the negativity shrouding Asia's biggest economy, saying he's "reasonably sure" China will grow between 6 percent and 7 percent this year and next -- a prediction that hardly anyone else has endorsed. Kuroda has effectively lashed his credibility, and his legacy, to China's trajectory. It's not hard to understand why he might have felt he had no choice.

Kuroda has to contend with three big problems. The first is demographics. Just as his predecessor Masaaki Shirakawa warned, Japan's consumer prices are bound to fall as its population ages. The second is a dearth of confidence: Monetary policy has been rendered comatose by the public's hesitance to borrow and banks' hesitance to lend. The third is China's slowdown -- a variable far beyond Tokyo's control, but no less critical for Japan's fate.

[. . .]

The fact that China isn't crashing should put most of the world at ease. But even a moderate slowdown could prove a lethal blow for Japan. China's combination of deflation and currency devaluation is reducing the odds that the trillions of dollars of monetary stimulus Kuroda has pumped into markets since April 2013 will ever gain any traction.