This week confirmed the central thesis of Lael Brainard’s February 26th speech, “What Happened to the Great Divergence,” where she argued that all major central banks are now pursuing very similar policy paths due to weak global growth. Last week, the ECB amended their asset purchase program. This week the RBA and BOJ kept rates steady while the Fed became more dovish. And there is no sign of any major bank tightening in the near future.   

This week, the Bank of Japan maintained their current policy. BOJ head Kuroda stated lower rates were possible as a way to continue boosting inflation. But, Japan still faces large problems.“Abenommics” took a big hit when the larger Japanese employers refused to increase pay by the amount requested, instead granting far smaller raises.  

Japanese companies have markedly slowed the pace of wage growth in one of the worst blows to hit the Abenomics stimulus since it was launched in 2012.

As results of the annual “spring offensive” on wages poured in from across the manufacturing sector, many companies offered pay rises half the size of last year, and far below the pace needed to drive inflation to 2 per cent.

The results are a double blow to Shinzo Abe, prime minister, and the Bank of Japan. Lower wage rises not only mean less cash to fuel consumption, they cast doubt on the credibility of the BoJ.

The BOJ has been arguing for a “virtuous cycle” of pay raises leading to increased spending. They’re arguing straight from Keynes’ marginal propensity to spend. Obviously, if the first half doesn’t happen, then the second falls short.And that’s exactly where the BOJ is now. 

News from the UK was mixed. On the plus side, unemployment was 5.1% while total pay increased a little over 2%. And the BOE offered a fairly positive assessment of the domestic economy in their policy announcement:

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