- The Reserve Bank of India cut its inflation forecast for FY2017/18.
- South Korean President Moon suspended the installation of the remaining components of the THAAD missile shield.
- S&P cut Qatar one notch to AA-.
- Turkey looks likely to get caught up in yet another regional conflict.
- Brazil’s structural reform agenda has been delayed as President Temer remains on the ropes.
The Nikkei Stock Average has regained 20,000 points and Japan’s jobs-to-applicants ratio is improving, yet Prime Minister Shinzo Abe’s reluctance to tackle reforms needed for the country’s growth raises questions about the leader’s commitment to his signature economic policy.
“In order for Japan’s economy to achieve more than a recovery and continue stable, long-term growth after that, it is essential to strengthen Japan’s growth potential,” proclaimed a key economic and fiscal policy plan finalized in June 2013, about six months after Abe took office as prime minister for a second time.
Two of out three arrows
That was four years ago, and the government approved the fifth iteration of the plan Friday. But the country’s potential growth rate now stands at 0.69%, according to the Bank of Japan, compared with 0.84% in the second half of fiscal 2014 — a sobering take on what Abenomics has actually accomplished.
The government and the central bank have focused on the first two arrows. The BOJ’s total assets have topped 500 trillion yen ($4.53 trillion), while long-term interest rates remain around zero. In terms of fiscal policy, Japan has passed seven supplementary budgets in just five years, spending about 25 trillion yen in the process.
“Extreme fiscal spending and other measures have led to a distorted allocation of resources in the economy and reduced productivity,” said Ryutaro Kono, chief Japan economist at BNP Paribas. Monetary and fiscal tools were only supposed to serve as a Band-Aid until growth ignited. But by relying too heavily on them, Japan neglected to lay out an effective growth strategy.
On a scale of 1 to 5
Germany’s foreign minister Sigmar Gabriel warned that the ongoing isolation of Qatar by Saudi Arabia and its allies could lead to a war in the Gulf region, according to an interview he gave to Germany’s Frankfurter Allgemeine Sonntagszeitung, although he added that he still saw a chance to defuse the tension.
“There is a danger that this dispute could lead to war,” Gabriel said citing what he called a “dramatic” harshness in relations between allied and neighbouring countries in the Gulf.
The foreign minister said personal talks this week with his counterparts from Saudi Arabia, Qatar and Turkey, and phone calls with the foreign ministers of Iran and Kuwait underscored his concerns.
“After my talks this week, I know how serious the situation is, but I believe there are also good chances to make progress.”
Gabriel also said that he had a phone conversation with Secretary of State Rex Tillerson on the Gulf situation on Friday and said that Tillerson showed a “very wise and prudent attitude” that has contributed to calming the conflict.
Yet while Tillerson was “calming” the conflict, during a press conference on Friday Trump appeared to be adding fire to it, when the president accused Qatar of being a “high level” funder of terrorism even as the Pentagon and Tillerson cautioned against the military, commercial and humanitarian effects of a blockade imposed by Arab states and others.
As expected, on Saturday Saudi Arabia and Bahrain welcomed Trump’s demand for Qatar to stop supporting terrorism, but did not respond to a U.S. Department of State call for them to ease pressure on the Gulf state. After severing ties with Qatar on Monday, Saudi Arabia said it was committed to “decisive and swift action to cut off all funding sources for terrorism” in a statement carried by state news agency SPA, attributed to “an official source”.
In a separate statement issued on Friday, the United Arab Emirates praised Trump’s “leadership in challenging Qatar’s troubling support for extremism”.
A separate SPA report on Saturday acknowledged Tillerson’s call for Qatar to curtail support for terrorism, but did not mention his remarks that the crisis was hurting ordinary Qataris, impairing business dealings and harming the U.S. fight against the Islamic State militant group. Saudi Arabia said its action followed the conclusions of last month’s Arab Islamic American Summit in Riyadh, where Trump delivered a speech about Islamic extremism.
Trump said he helped plan the move against Qatar, although a senior administration official told Reuters earlier this week that the U.S. had no indication from the Saudis or Emiratis during the visit that they would sever ties with Qatar.
Meanwhile, adding further fire to the situation, on Saturday Turkish President Recep Erdogan vowed to continue supporting Qatar. “Now, there are ones who are bothered because of us being together with our Qatari brothers or sending and exporting food supplies, drugs etc – no matter if they are in hunger or thirst – should excuse us. We will continue to give all our support to Qatar,” Erdogan said at an iftar (fast-breaking meal) with members of his AK Party in Istanbul, quoted by RT.
Echoing Tillerson, the Turkish urged Saudi Arabia, as “the largest and most powerful state in the Gulf,” to reduce tensions and lift sanctions. “It is wrong to add more troubles on top of everything in the term that the Muslim world is already struggling with a lot of problems,” he said. “I am calling you: There won’t be any winners in the brother’s fight.”
“You have to work for bringing brothers together. This is what we expect from Saudi, the Custodian of the Holy Mosques [in Mecca and Medina],” Erdogan added.
Separately, Turkey’s foreign minister Mevlut Cavusoglu said Erdogan, who met with Bahrain’s Foreign Minister Sheikh Khalid Bin Ahmed Bin Al Khalifa in Istanbul on Saturday, said a solution to the dispute needs to be found by the end of the month of Ramadan.
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