In the fourth instalment of our exploration into ten critical themes shaping the global economic landscape, InvestSense and Hunt Economics dive into: 'Japan - Euthanasia of the Saver' and 'Eurozone Competitiveness Differentials.'
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Theme 6:  Japan - Euthanasia of the Saver

This theme addresses Japan's prolonged low interest rate environment and ongoing quantitative easing (QE) policies. Despite the Bank of Japan's (BoJ) stated intentions to tighten monetary policy, the Ministry of Finance (MoF) is likely to maintain a loose monetary stance to erode the real value of Japan's large public debt and boost tax revenues through inflation. This policy is effectively reducing the real value of  savings—hence the "euthanasia of the saver."

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Investment Implications:

Short-term:

- Continued liquidity support for Japanese equity markets

- Potential further weakening of the yen

- Limited upside for Japanese Government Bond (JGB) yields

Medium-term:

- Ongoing QE and yield curve control

- Gradual erosion of the real value of cash savings

- Possible rise in domestic inflation, especially through increased import prices

Long-term:

- Potential for significant structural changes in Japan's economy

- Greater acceptance of entrepreneurship and risk-taking

- Possible shift in household savings behaviour towards higher-risk assets

Theme 7:  EuroZone – Competitiveness Differentials

This theme highlights the widening disparity in competitiveness among Eurozone countries. Despite structural flaws in the Eurozone, the European Central Bank (ECB) has managed to stabilise the region through aggressive QE policies. However, countries like Spain, Italy, and Greece may become increasingly competitive, while traditional powerhouses like Germany could face growing challenges.

Investment Implications: 

Short-term:

- Potential for the ECB to resume quantitative easing, particularly in early 2025

- Possible weakening of the euro

- Opportunities in southern European markets, especially Spain and Italy

Medium-term:

- Increased capital flows to more competitive southern European economies

- Potential for a "Euro bubble" in southern European property and equity markets

- Challenges for German and Eastern European economies

Long-term:

- Continued structural imbalances within the Eurozone

- Potential for political tensions due to competitiveness differentials

- Need for active country selection within European investments, moving away from passive index strategies

For both themes, the key message is the importance of active management and selective investment approaches. The divergence between countries and sectors within these regions requires careful analysis and flexible positioning, rather than relying on broad, index-based strategies.

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Catch up on themes 1 & 2: China’s Minsky Moment and Asia’s broken model

Catch up on themes 3 & 4: QE Addiction and the Non-Bank Credit Boom

Catch up on themes 5 & 6: The Future Ain't What It Used To Be and Geopolitics