EFTA01449244.pdf

16 May 2013 FX Blueprint: Dashing Buck anticipates a 'virtuous cycle among production, income 'Abe's delivery scheudule and spending triggered by increases in public investment and exports.' At the risk of caricature, 30/31 May International seminar on Shenomo. Tokyo Hayami had been all about gritting one's teeth and mid luny tconoMr and irtscofPoky and Economic Revreatrabon holding out for the eventual benefits of oaVaory babel MAO n44or reammendobors (Schumpeterian) creative destruction, while Shirakawa 13 Jun Tokyo (PMOMER.In elta,014 was resigned to the structural drag from demographics. July CUP haring on monetary policy and inflation Kuroda has taken a leaf out of the Fed's much more late July Upper &lure tie:Came activist playbook, raising the stakes (promising almost Anus': Soo., scanty reform pone 'womb bock three times as much QE) and taking a lead in talking up September Fatal reconstngtcoplon the economy's reflationary prospects. Policy board °Claes Provis:onal deadline for TPP aJPatment members' core forecasts are that the economy will exceed its potential by a factor of 5-6 times this fiscal &.e. Puns BIM year (2.4-3.0% versus 'around 0.5%,' albeit with the caveat that this includes frontloaded demand ahead of jPeriods of yen weakness in the 70's and early 80's the April '14 consumption tax hike)! 960 i• 36 Measures of progress will come over the summer, with 34 investors able to gauge the reaction to: (i) Abe's grand 330 deregulation and competition plan, to be unveiled mid- [ 32 June; (ii) the Tokyo metropolitan and Upper House 300 3.0 elections, in June and July respectively; plus (iii) final 28 social security reform and fiscal reconstruction plans in 279 4 1 26 August and September. Positive domestic sentiment could well exaggerate risk-seeking outflows just as the 240 r 2.4 Fed discussion about tapering down asset purchases is 210 22 progressing. USEUPY (LKSI a 2.3 160 I —robe to USO GIO IB [fey) vu and then 150 1 16 So how does the current backdrop stack up against 71 73 75 77 79 81 83 85 previous periods of significant yen weakness? We examined seven episodes since the breakdown of Scarce Diane* lieu Bretton Woods. They were characterized by trade shocks (mid- and late-70s, late-'80s, mid-'90s); valuation overshoots and intervention (mid-'90s); Periods of yen weakness since the late 130's capital outflows, be they deregulation-, risk seeking- or 'sell-Japan'-driven (early and late-'80s, mid-'90s, early 170 20 ...00•1150,1PY (1.1-15) and mid-'00s). Clearly, today shares many of these 160 It —ratio to 050 GIC features, with the added kicker of an unprecedented 150 1.8 monetary backdrop. This is what raises the prospect of 140 overshoot. But that's unlikely to be an issue in the next - 16 3-6 months. 130 I 120 14 James Malcolm, London, (+44)20754 50884 110 1 • Taisuko Tanaka, Tokyo, (+81)3 5156 6714 1.2 We 90 i 10 so 70 87 89 91 93 95 97 99 01 03 OS 07 09 11 13 Scott Oduwch• Owl Page 6 Deutsche Bank AG/London CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0104570 CONFIDENTIAL SDNY_GM_00250754 EFTA01449244