Axios Macro

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Yesterday in Washington, influential economists and policymakers warned about a bumpy path as the world moves away from economic interconnectedness. The top takeaways are below.

  • Plus, new hints that Japan could end its ultra-easy monetary policy sooner rather than later. 🇯🇵

Today's newsletter, edited by Javier E. David and copy edited by Katie Lewis, is 669 words, a 2½-minute read.

1 big thing: The risks of deglobalization

Illustrated collage of a globe in pieces with lightening bolts coming out of the edges.

Illustration: Aïda Amer/Axios

Major economic powers, including the U.S., are turning inward — a trend sped up by the pandemic and efforts to boost domestic industries.

  • The shift away from hyper-globalization poses huge questions for what lies ahead.

Why it matters: These geopolitical divides could create a more brittle global economy, warned IMF managing director Kristalina Georgieva and other leading thinkers at a Council on Foreign Relations event yesterday.

What they're saying: "During the highs of globalization, we were a bit too complacent," Georgieva said. "We have to accept that there had to be a course correction — it could be healthy, but only if we do it right."

  • "What worries us is that we are not quite yet seeing an understanding that in a world of more frequent shocks, the only way to build resilience is to work more together," Georgieva added, noting efforts like climate change and the green transition.

The intrigue: Georgieva cited a slowdown in trade, as well as growing restrictions around the world.

  • "It's happening for a reason. It's not that people have become mean and they don't want to trade with each other. ... When trade doesn't grow, that has implications," she said, noting that trade fragmentation could cause a contraction in global GDP growth.

The big picture: Nations have disentangled from one another following COVID-19's historic shock to become more self-reliant — an effort to prevent the sort of supply chain disruption that happened during the pandemic.

  • Governments are also throwing massive investments into major industries, like semiconductor manufacturing — in the case of the U.S., cutting off the nation from chips is being done on national security grounds.

Between the lines: "You don't get resilience by restricting exports," Caroline Atkinson, who served as a deputy national security adviser in the Obama administration, said during a panel at the event.

  • "It's like water. If you try and put in some dams, you might end up with the water going somewhere that you weren't expecting."

Worth noting: Georgieva acknowledged that the global economy was performing much better than economists at the IMF and elsewhere expected.

  • "We have gone through unthinkable events — COVID, then Russia's war in Ukraine, then the cost-of-living crisis, now a very serious crisis in the Middle East," Georgieva said. "And yet, we are not experiencing a dramatic economic shock."

2. Bank of Japan's hawkish hints

Bank of Japan deputy governor Ryozo Himino (left) and governor Kazuo Ueda (center). Photo: Kim Kyung-Hoon/Reuters/Bloomberg via Getty Images

The Bank of Japan has been the outlier among major central banks, sticking to negative interest rates even as its major economic counterparts have pushed their target rates higher. That may be on the verge of ending, based on new hints out of Tokyo.

Driving the news: A speech yesterday by the BOJ's deputy governor, followed by comments from governor Kazuo Ueda to Parliament at a meeting with the prime minister Thursday, led traders to believe that a rate hike could come as early as a Dec. 19 meeting.

  • The yen soared about 2% against the dollar, setting a new three-month high.

State of play: Japanese interest rates have been negative 0.1% since 2016, part of a wide-ranging monetary stimulus meant to end a multidecade cycle of deflation and sluggish growth.

  • Now, with inflationary forces unleashed the world over, the big question is how and when Japan will exit its negative rate world.
  • Another question is how much that pivot will damage the economy.

What they're saying: Deputy governor Ryozo Himino said in his speech yesterday that if "sustainable and stable achievement of the price stability target were to come in sight," the BoJ "will likely gradually revise the large-scale monetary easing it has implemented to date."

  • "If this is done properly, there would be a sufficient possibility of achieving a positive outcome from the exit, since a wide range of households and firms would benefit from the virtuous cycle between wages and prices," Himino added.

Between the lines: Neither official said explicitly that the day for rate hikes is imminent. But the fact that they are publicly gaming out the impact suggests the negative-rate era won't last too much longer in Japan.