Iowans are so stubborn they could stand touching noses for a week at a time and never see eye-to-eye, according to a lyric from Meredith Wilson’s The Music Man.
 
That notion is as out of date as the musical, especially for the Iowans who will caucus on Monday to choose presidential candidates. Iowans have a history of being anything but predictable, let alone stubborn.
 
The candidates are another matter. Donald Trump refused to participate in Thursday’s debate on Fox News despite earnest on-air entreaties by Bill O’Reilly. (At this point, we’re obliged to state that Barron’s and Fox News were part of the same corporate entity until mid-2013; now we mainly share an elevator bank.)
 
The show went on without Trump, generating far less heat than the previous debates, but no more light on the issues. Perhaps the best moment was the joust over immigration legislation between freshmen Sens. Ted Cruz of Texas and Marco Rubio of Florida, which was broken up by New Jersey Gov. Chris Christie with a withering comment contrasting inside-Washington wrangling with running a state. Nobody thought to mention the numerous rating downgrades of the Garden State’s credit on Christie’s watch, not exactly a winning credential for a chief executive.
 
As for the rest of the field, longtime Washington watcher Greg Valliere of Horizon Investments thought that Jeb Bush had a good night without Donald there, although his campaign is “on life support,” with a second-place finish in next week’s New Hampshire primary possibly needed to keep him in the game. Rubio “may be making a move in Iowa,” Valliere says, but the bottom line is “this race is Trump’s to lose, and he knows it.”
 
As for the Democrats, lots of Iowans, especially the young ones, apparently feel the Bern and could give Vermont Sen. Bernie Sanders heady momentum going into the primary next door in New Hampshire. After that, the self-described democratic socialist has a tougher road, especially in primaries in more diverse states. For him to beat Hillary Clinton, once the prohibitive favorite, would remain a major upset, even with the private e-mail controversy hanging over her.
 
Meanwhile, reports that former New York City Mayor Michael Bloomberg is considering a run as an independent, were there to be a Donald-Bernie presidential race, further increased the political intrigue. That’s despite Bloomberg’s memorable declaration in an interview that there was no way he’d run for president. I paraphrase, however, omitting the modifier inserted between “no” and “way” that Mike no doubt learned as an impressionable youth in the legendary Salomon Brothers trading room.
 
The biggest surprise on Thursday night—at least for market fans and participants who watched the debate on one screen and overseas developments on another—was the move to negative interest rates by the Bank of Japan. The central bank’s governor, Haruhiko Kuroda, just a week earlier had declared that the BOJ wouldn’t follow the lead of the European Central Bank, the Swiss National Bank, and others on the Continent in imposing negative interest rates. But he showed himself to be anything but stubborn in that view, which added the element of surprise to his move.
 
While Japanese short-term rates have hovered near zero since Clinton’s husband was in the White House, putting a minus sign in front of some of them had a significant impact on global markets.

Currency-exchange rates become the main thing that affects the real economy when interest rates already are essentially nil. And the yen weakened sharply, by nearly 2%, to over 121 to the dollar from under 119.
 
That 2% gain in the dollar versus the yen doesn’t sound like much, but it was almost as much as the surge that Kuroda’s decision sparked in Japan’s Nikkei 225 and Hong Kong’s Hang Seng, although shy of the 3% bounce in the Shanghai Composite. And it compared favorably to rallies in the major U.S. equity benchmarks on Friday, as the Dow Jones Industrial Average, the Standard & Poor’s 500, and the Nasdaq Composite added 2.4% to 2.5%.
 
It’s clear how a lower yen would benefit Japanese companies: Cheaper exports help sales, while currency translations of overseas earnings also benefit. All textbook stuff. A lower yen also boosts “carry trades”—borrowing in yen to buy higher-returning assets, in the expectation of repaying those margin loans with cheaper yen.
 
How much Kuroda’s action will bolster Japan is questionable. As Barrons.com’s William Pesek pointed out in his Jan. 29 Up & Down Asia column, the ball is now in Prime Minister Shinzo Abe’s court. He has to effect the structural reforms that Abenomics promised in order to stir the economy out of its two-decade torpor.
 
For the rest of the world, the implications are different. While negative Japanese interest rates will provide more cheap credit to bid up risk assets, the impact in the political sphere could be rather less benign.
 
Trump has railed against China and Japan because of their large trade surpluses versus the U.S., claiming that America is losing billions because of those nations’ alleged currency manipulations. By objective standards, it’s not clear that the Chinese yuan or the Japanese yen are undervalued. In the case of the former, it’s more likely that the yuan remains overvalued against most other currencies, as a result of its rise in tandem with the U.S. dollar.
 
No matter. Moves such as the BOJ’s have the potential to exacerbate the currency wars. The 2% effective devaluation of Japan’s yen had knock-on effects on Asian competitors. But for Japan’s biggest rival, China, it’s more complicated.
 
Chinese officials have made it a major point of pride that the yuan will remain stable and strong in the eyes of global markets. They even took aim at financier George Soros for his forecasts that China’s economy inevitably is heading for a hard landing. Soros, of course, is famous for his successful bet in 1992 that the Bank of England couldn’t hold the pound’s peg against the (then) German mark.
 
China is fighting capital outflows that some estimates put as high as $1 trillion in the past year or so.

Part of that represents Chinese corporations’ rush to repay foreign-currency debt that would increase in real terms if the yuan declines. Part also represents acquisitions of foreign assets, such as the recent purchase of the appliance business of General Electric (ticker: GE) by Haier (1169.Hong Kong).
 
But another part is the effort of Chinese nationals to get their money out of the country. Reuters reported last week that HSBC is curbing mortgage loans offered to Chinese citizens to purchase property in the U.S.
 
At the same time, China’s monetary authorities have kept the liquidity spigots open to replace the money fleeing the country. That means they’re trying to fulfill contradictory aims: Keep money easy at home and the yuan firm internationally.
 
Clearly, that’s impossible. If China’s yuan declines further, as fundamentals dictate, and Japan eases policy and lets the yen fall, there could be political repercussions in the U.S. during the election campaign.
 
At week’s end, global equity markets were looking only at the upside of more cheap money via Japan.

But the winners in Iowa and New Hampshire aren’t likely to take kindly to what they see as currency manipulation that hurts U.S. workers. And they’re apt to be rather stubborn about it.

TRUMP MIGHT DISAGREE, given the origins of his sparring mate Ted Cruz, but there’s something to be said for hiring somebody born in Canada. Take Mark Carney, the Canadian-born governor of the Bank of England, who recently said it wasn’t time yet to raise British interest rates. The United Kingdom and U.S. economies had been thought to be on roughly the same track and that the BOE would follow the Fed in raising rates.
 
Turns out that the Canadian had the right idea. Just as the U.S. central bank initiated its rate liftoff in December, the American economy was sputtering. Fourth-quarter gross domestic product grew at an anemic 0.7% annual rate, which was close to economists’ steadily lowered estimates. As ever, the details were revealing.
 
The strong point was consumer spending, which talking heads never tire of pointing out accounts for about 70% of the U.S. economy. The mystery has been why Mr. and Ms. America haven’t gone on a shopping spree with their windfall from lower fuel prices.
 
The GDP data show that real personal consumption expenditures were indeed a strong point, growing at a 2.2% seasonally adjusted annual rate in the fourth quarter, as Steve Blitz, chief economist of ITG Investment Research, notes. While spending on goods slowed, spending on services expanded at a healthy annual 2% pace. Of that, 47% of the increase was for medical costs, he observes. In other words, much of the savings at the gas pump went for health-care expenses, which left less to leave at the mall.
 
The Fed last week left interest rates unchanged, as expected, as it acknowledged slower economic growth, despite the apparent improvement in the jobs data. The financial-futures market is giving only slightly better-than-even money to one more rate hike by December. As sub-zero rates take hold around the globe, even that seems less likely.