- Albert Edwards, the notoriously bearish strategist at Societe Generale, actually has an optimistic take for once.
- Speaking at his annual Global Strategy presentation in London, Edwards had a positive view on the Japanese economy.
- Edwards pointed to rising inflation expectations, rising female participation in the labour market, and a possible acceleration in consumption as reasons to be cheerful about Japan.
- Despite his upbeat tone, Edwards still warned that the current market boom will eventually “go horribly, badly wrong.”
LONDON — Earlier this week, investors piled into the conference room of a London Marriott hotel to hear the annual doom laden presentation from Societe Generale’s notoriously bearish global strategist Albert Edwards.
This year, however, there was a little bit of a difference. Edwards didn’t seem quite himself, and actually made some reasonably positive assessments of certain areas of the market.
Sure, he still warned that the current market boom will eventually “go horribly, badly wrong,” but Edwards’ presentation was tinged with a strange sense of optimism that is sure to have made some attendees a little uncomfortable.
“I feel I’m not going to be as bearish as I normally am,” Edwards said. “It’s getting a bit wearing, and no one really wants to hear it that much.”
One area of the world in particular was the object of Edwards’ affections — Japan.
Japan’s economy, long widely viewed as slow, cumbersome, and plagued by demographic issues, is starting to make a comeback, Edwards believes, first pointing to the way in which the country has managed to mobilise women into the workforce in recent years.
Japan is “doing some fantastic things about getting women into the workforce,” Edwards told the audience, before pointing to the chart below:
“This compares female labour market participation in the US and Japan with the rest of the OECD. There has been a quite extraordinary acceleration since Abe came to power. This is certainly one part of his policy which has worked.”
More and more women coming into Japan’s workforce is understandably having a positive impact on the country’s macroeconomic situation.
“Despite quite subdued wage inflation, when you add in the employment growth, nominal income growth is around 2% in Japan. That’s actually showed quite a decent acceleration, even though wage growth hasn’t,” Edwards told the conference.
“In the UK or the US, consumption has been running way ahead of this in the last couple of years, so the savings ratio has collapsed. It is the opposite in Japan.”
Here’s the chart:
“Consumption has undershot rapid income growth, and there’s a real case to be put that consumption growth in Japan can accelerate very, very rapidly. As long as income growth holds, expect consumption to accelerate.”
“GDP is already running at over 2% at the moment, so actually it could step up quite considerably. That could be a real surprise,” he said.
One of the most often cited issues with Japan’s economy is the sclerotic inflation picture. That could be about to turn, Edwards believes.
“Inflation expectations have been picking up everywhere, even in Japan,” he said.
“The percentage of households who see positive inflation, as opposed to deflation, is now over 60%. What is interesting is that this has been trending up, despite headline inflation remaining close to zero.”
“Normally you’d need a spike in headline inflation for those to drift up. If this drifts up, the real expected interest rate declines, and that is a monetary loosening in itself. If people think deflation is disappearing, they will stop postponing purchases, so this is very significant.”
Increasing female participation in the labour market, the potential for a rapid acceleration in consumption, and rising inflation expectations. Edwards may be famously downbeat, but he was not short of reasons to be cheerful when it comes to the world’s third largest economy.
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