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Thursday, May 31, 2007

Japanese Wages

Well adding more fuel to the fire on my post yesterday, wages data release today say that monthly wages in Japan, including overtime and bonuses, fell (0.7) for the fifth consecutive month in April (as compared with a year earlier):

Japan's wages unexpectedly fell for a fifth month, hampering a recovery in consumer spending that's being fueled by job growth.

Monthly wages, including overtime and bonuses, declined 0.7 percent in April from a year earlier, the Labor Ministry said today in Tokyo. The median estimate of eight economists surveyed by Bloomberg News was for a 0.1 percent increase.

Without higher wages, consumer spending may falter, threatening growth in the world's second-largest economy. Japan's jobless rate fell to nine-year low in April, prompting some economists to say wages will rise later this year.

``The jobless rate is expected to fall close to 3.5 percent, which will start fueling wages and give thrust to inflation,'' said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo.


So here is the puzzle: Japan's unemployment is falling as export driven growth continues and the workforce declines, but why are wages falling?

Two explanations are being offered, both of them relatively plausible, but we definitely need more info and data here:

One reason wages have fallen since December is the replacement of retiring baby boomers with younger, and therefore cheaper, employees, economists say.

Another reason is the increased use of part-time workers, whose pay averages less than half that of regular employees, according to Atsushi Seike, professor of labor economics at Tokyo's Keio University and a member of the government's labor policy council.

This trend in falling (real) wages (remember in a deflationary environment nominal wages are falling, but this isn't the point) is of rather long duration:

Average pay fell about 10 percent between 1997 and 2005, when companies replaced regular workers with part-timers. Part- timers made up more than a third of the workforce in the first quarter, rising almost one percentage point from the previous three months, the statistics bureau said this week.


Household spending has been rising slightly in recent months, but it is not really clear why this is. Certainly household spending will be a data point to watch going forward.

Household spending climbed 1.1 percent in April and has risen every month this year, even as wages slipped.

Wednesday, May 30, 2007

Time For The BoJ To Move?

by Claus Vistesen

It has been a while since I have last reported on Japan and I even manged to slip on the Q1 GDP figures which showed in unconventional fashion how consumer spending acted as a cushion for declining industrial production. As such, here is a short note which should bring you up to date with the latest ...

On the Q1 GDP figures they should of course to be taken with a pinch of salt since the Japanese trade surplus widened all through Q1 on strong demand from Europe and the rest of Asia (China) even as exports expectedly slowed slightly to the US on the back of sluggish performance in the first quarter. So, capex cannot continue to slump forever in Japan if the trade surplus keeps widening and at some point those inventories although very full from Q4 06 will be depleted. Edward Hugh has an excellent round-up of the recent data and commentary coming out of Japan surronding the first quarter data releases.

Now, the recent data from Japan is indeed interesting and whilst Edward is covering the dip in unemployment from 4% to 3.8% noting the interesting point that wages still are stubbornly reluctant to rise (where is that damn NAIRU? :)) I am going to treat the figures for consumption expenditure which show a y-o-y increase of 1.1% in domestic consumption. As such, we need, as ever I guess, to dig a bit deeper than the traditional (although much appreciated) Bloomberg headline of 'an unexpected accelaration ...'

The immediate point I think should be noted is the nature of the main figures provided by Bloomberg and thus the Japanese statistical offices which are not seasonally adjusted. This is of course not a major issue but the difference revealed in these two figures is fairly large and generally there is much more in the Japanese consumption figures than the headline increase of 1.1% (in this concrete case) would lead you to believe. First of all, we can of coure try to even the average monthly increase in y-o-y consumption expenditures (see here) which amounts to an average increase of 0.8%. This is of course not an outright decline but still hardly sizzling either. Moreover, if we break down the headline figure into sub components we see that education accounted for a above average part of the increase. This coupled with household equipment and medical care were largely what drove the increase in consumption expenditures in April, and we need to ask ourselves whether for example the sub-component 'education' will continue to expand at this pace although of course other sub-components might take over (recreation and culture for example?). The last thing of note is that retail sales continued a six month decline according to Bloomberg although they also make a point on noting that retail sales figures should be taken with a pinch of salt since they do not take into account all those internet savy Japanese consumers buying goods over the internet.

Well, a 1.1% increase is indeed by Japanese standards a hefty growth clip and coupled with the recent signs that industrial production is about to pick up the pace after a sluggish first quarter it seems as if the the BOJ has collected all the ammunition it needs for an increase towards 0.75%. Japanese 5-year notes responded accordingly as yields went up to near a six month high. So is it time for the BOJ to sneak one in here? It could certainly seem so and I would like to stress that although I don't see Japan escaping deflation in any decisive way it would perhaps be smart for the BOJ to lock in 'as many' hikes as possible in order to be able to act on the downside should it come sooner than later. However, as Edward noted above wages are still falling and coupled with a deflationary environment tightening monetary policy does not exactly seem to be the standard remedy. Moreover, I am ever skeptical towards the idea of a continuous pick-up in domestic demand. If we stick by the measures used by Bloomberg I don't see domestic consumption breaking the 1% threshold in 2007 on an even out seasonally adjusted basis, especially not if the BOJ's hiking campaign prematurely pushes Japan back into deflation. As always we will see come next BOJ meeting what Fukui has in store for us and even though I think that the BOJ should not raise I do think we might soon be looking at 0.75% in Japan.

Update

A couple of addendums ...

Tuesday, May 29, 2007

Employment in Japan: Theory and Practice

Well unemployment in Japan has fallen yet one more time (and here in Bloomberg). Now there is nothing really surprising about this, since Japan's economic expansion is continuing (albeit driven by exports rather than by domestic consumption) and the population of working age is declining, so there is evidently a "capacity" problem here (although it would perhaps be interesting to ask in the light of my post about the Irish "phenomenon" yesterday, why exactly it is that this expansionary wave is not producing more inward migration). Some background posting on the Japanese labour supply issue can be found here, and here.

Essentially the position is that Japan's unemployment rate dropped in April to 3.8% from 4% in March. Now, as I say, there is nothing really surprising in this drop, since it is to some extent built into the demographics of the situation. More surprising perhaps is that as unemployment is falling wages have not been rising:

So far higher demand for workers has yet to reverse a decade-long slide in wages or drive up prices. Wages declined for a fourth month in March after rising 0.3 percent in 2006. Consumer prices excluding fresh food fell for a third month in April, declining 0.1 percent after a 0.3 percent drop in March.
Bloomberg

As the FT also notes Economy Minister Hiroko Ota is clearly not too impressed with the situation:

Hiroko Ota, Japan’s economy minister, who has been cautious about declaring an end to deflation, said she remained concerned that wages had not responded to tighter labour market conditions. Household disposable income fell 0.4 per cent year on year in April, the first fall in more than six months, suggesting that wages had not picked up as fast as many had hoped.

and

Bank officials have admitted they are puzzled by the slow rate at which improved corporate performance has influenced other sectors of the economy. However, they say they are confident that they are witnessing merely a lag effect, rather than a breakdown in their central scenario.

Now all of this is interesting, since it will be remembered that standard neo-classical theory would suggest a different impact from a growing shortage in the supply of labour - namely that wages should rise, and that this increase in wages should lead to labour being systematically replaced by capital intensive equipment (and especially in Japan, where capital, as is well known, remains incredibly cheap and widely available). This replacement of labour by capital is also one of the arguments behind the assumption that ageing should lead to a technology driven productivity surge to help offset the impact on the growth rate of fewer workers being employed (Japan has not hit this capacity ceiling yet, but at the present rate, and absent immigration, she soon will). Could we expect the neo-classical idea to kick in as we tank fills, and the water rises steadily towards the ceiling.

Personally I am not sure, which is why I think that this new and very interesting situation (which has large implications for all of us as our societies age) should perhaps be being investigated with rather more intensity than currently seems to be the case.

Thursday, May 24, 2007

Japanese foreign direct investment in other countries

An IMF study titled "Japanese Foreign Direct Investment and Regional Trade" details Japan's investment abroad since the early 1980's. The most noticeable fact that the study turns up is that 'outflows have exceeded inflows by more than a factor of 10"...I think that is at least in part attributable to the closed nature of Japan's economy which has only recently begun to open up to foreign investment. Another factor to be considered is that Japan's exports had been generating so much capital that there was little need for foreign investment to fund capital expenditures.

Also noted in the study is the fact that "By the late 1980s, Japan was investing more abroad than any other country in the world, with its FDI peaking at $67.5 billion (around 2.5 percent of GDP) in 1989"...and then the authors state that "This boom in Japanese FDI ended abruptly in the early 1990s when the asset-price bubble burst." So I feel safe in concluding that a substantial portion of the capital exported abroad came directly out of bank loans against real estate holdings. The study seems to support this as it states that "annual outflows declined steadily, both in absolute terms and relative to GDP and fixed investment, as the sharp decline in asset prices in 1990, which led to severe balance sheet difficulties for many businesses and banks, triggered a deep and protracted economic slump." A question I have is whether the returns on the foreign investments were sufficient to cover the cost of the bank capital...I don't have that data ready to hand.

As to where the capital was going, apparently "Japanese companies sharply increased their investment in North America in the 1980s"..."the United States alone received 50 percent of total Japanese FDI"..."whereas developing countries (including those in Asia) saw their share drop from 50 percent to about 25 percent." Further, the study concludes that "During this period, Japanese overseas investment in the tertiary sectors—including finance, insurance, transport, and real estate—grew significantly, while the share of FDI in manufacturing and mining declined." Essentially, Japan at this point was exporting its real estate bubble to the US; as was greatly discussed at the time with absurd prices being paid by Japanese companies for golf courses, certain office buildings, and other "trophy" properties.

In recent years the trend in FDI is described to the effect that "The share of Japanese FDI received by developing countries has returned to the levels seen in the early 1980s—and the share received by Asian countries within this total has increased substantially. At the same time, FDI flows to industrial countries—particularly the United States —have decreased. The decline of Japanese investment in the United States coincided with the decline in Japanese investment in services, particularly real estate, while the corresponding increase in FDI outflows to other countries in Asia has led to increased Japanese foreign investment in manufacturing, particularly chemical products and machinery." It would appear that recent developments reflect a more measured approach to investing in assets that will consistently generate positive returns. I would say that investment in auto plants in the US has certainly proved to be a winner, as this defused protectionist sentiment in the US, and likely resulted in a lower cost of labor relative to Japanese workers, and has not resulted in any reported declines in auto quality measures for the Japanese auto makers.

The study authors conclude that "Japanese firms are diversifying the location of their production and moving to other countries those parts of their operations in which they are losing comparative advantage." They don't detail what sectors Japan might be losing its comparative advantage in, but it seems reasonable to suppose that the sectors in question are those that China has gained massive shares of in recent years. Therefore, investing overseas seems a rational response to the competition of China and other lower cost countries in Asia. In addition, building operations in China which has a massive supply of labor which can be employed could be a good solution to the problem of significant shrinkage of Japan's workforce in the future due to demographic factors.

These trends could provide avenues for ameliorating tension between Japan and China regarding past conflicts. To the degree that the two countries become more economically interdependent, the odds of future military conflict decrease.

The IMF in Japan

The FT today has an interesting article about the opinions of the IMF delegation which is currently in Japan. These opinions seem to be much more reasoned than much of the current consensus opinion which is emanating from the G7 or the Economist (for example) and especially in connection to the deflation problem and the issues it presents. According to John Lipsky (IMF First Deputy Managing Director) further rate hikes by the Bank of Japan (BOJ) should be delayed until inflation expectations have recovered and the consumer price trend is firmly rising. In particular they take the view that:

"it would be not be appropriate for the central bank to target asset prices, the so-called yen carry trades and currency moves."

I cannot but agree. As the article notes Japan’s core consumer price index, excluding fresh food prices, fell 0.3 percent in March from a year earlier, and while April the figure - due out on tomorrow - is expected to show a lower rate of decline (the March figure is a y-o-y decline of 3.6% rate), prices are still expected to be falling. Any increase in rates which hinders the attempt to move into positive price increase territory (whether by the direct route of raising borrowing costs and hence slowing domestic demand growth, or the indirect one of nudging up the currency) would be extremely unwise, especially given the protracted nature of the deflation phenomenon in Japan.

As Lipsky says:

"The main challenge is to manage a return to a neutral monetary stance in the context of very low inflation"

Perhaps it would be useful to consider just what exactly the three terms - expansionary, neutral, and contractionary - mean in the present Japanese context.

Now as a rule of thumb yardstick we might say a neutral rate is something like 2% above the inflation level (in this sense the current US rate is still a tightening one, since inflation expectations are still thought to be too high). Now in Japan, if the CPI were to be running at around the minus 1% rate, then neutral would be somewhere around the 1% base rate.

The IMF, however, still thinks that inflation expectations are running at too low a level in Japan, it wouldn't be hard to make out a case that what Japan needs - at the very least - is a mildly expantionary rate, which - depending on where the annual CPI actually settles in the short term - the current 0.5% could be considered to be. The "challenge" for Japan, as the IMF notes, is to move above that to the neutral 1% or so (or above, if inflation were to pick up).

This view would, I think, be more-or-less conventional wisdom (rather than G7 or Economist-type hype), but given the difficulties which Japan has been having in breaking the 0% CPI threshold, and given the ongoing weaknesses in domestic consumer demand, and given the fact that in the immediate term one of Japan's most important customers - the US - seems to be slowing I am still far from convinced that the BoJ should have abandoned ZIRP so early in the first place. We will see.

A counter view is expressed by the economists quoted in this Bloomberg article, which describes how yields on Japanese government bonds have been rising slightly in recent days, on the view that any fall in deflation from the March levels will be sufficient ammunition for the BoJ to start thinking about raising rates (and hence the note of concern in the IMF statements).

Typical of this current of thought would seem to be Norihisa Takao, an analyst at Daiwa Asset Management Co. in Tokyo. He cites a recent rebound in the so-called breakeven inflation rate - a measure which represents what the market expects core consumer prices to average in the next decade - as showing that inflation expectations are rising. In some senses this is the exact opposite of the view the IMF seem to be taking, but it is important to note that Takao is talking about long run expectations, while the IMF are focused on the short term expectations issue. The judicious among you may note that the road to longer term inflation passes through (or depends upon) what happens in the shorter term. If short term monetary policy errors push Japan back into some kind of deflation trap, what the inflation rate may or may not be ten years from now is really anyone's guess.

Just how fragile the whole Japanese growth dynamic is at present is revealed by this article which indicates that Japanese exports to the US fell by 4.8% in April, which was the the steepest decline since May 2004. True the drop is still significantly smaller than the 2004 one, but the outlook for the US economy is possibly somewhat more uncertain than it was back then. As Bloomberg notes:

"Auto shipments fell 7.5 percent, the biggest decline since April 2004 when they slid 15.1 percent. Autos represent about 10 percent of Japan's overall shipments to the U.S."

At the present time a good deal of the slack is being taken up by exports to the EU and Asia, but this only takes us back directly to the de-coupling issue, and to just how strong growth in China and Germany (say) would be in the face of a protracted US slowdown. The answer is really that the jury is still out, but there are reasons for thinking that Japan is currently feeling the pinch of the 1st quarter US slowdown via the direct route, but may then feel it via the indirect one if the slower US growth then feeds through to slower growth in Germany and China.

The numbers for machinery orders in Japan in March may give us a first reading here, since they fell by 4.5% over February. Even more worrying is the fact that the expectation is for machine output to fall by 11.8% this quarter. The first indications that the Japanese economy has been slowing of late was , of course, provided by the first quarter GDP number, which came in at an annualised 2.4%, down from the heady annualised rate of 5% in the last quarter of 2006.

True, domestic consumption did do reasonably well in Q1 2007 - rising at an annualised (if still rather meagre) rate of 0.9% (down from the 1.1% annualised rate in Q4 2006), but we would do well to remember that y-o-y, the first quarter number for domestic consumption was still only 0.1% (all these percentages are in estimated real terms), but I suppose you could say that where there is life there is hope.

The big, big, question, is what will happen to domestic consumption during this quarter, if, as seems likely rates of growth in exports slow, and domestic investment declines. According to the sustainable recovery view, domestic consumer demand should now move forward as the second leg of this expansion, something which I think there are good reasons to doubt. Again, as I say above, we will see, but in the meantime I think there are solid grounds for suggesting that the BoJ should pay a good deal more attention to the sound advice they are today being offered from the IMF than they should to the far more optimistic projections being offered by some market analysts.

Monday, May 21, 2007

Dis-saving in Japan: a logical consequence of an aging population

The above chart is courtesy of Claus at Alpha.Sources blog, and bears close examination. You see that household income has experienced negative growth since about 1997 and household savings has been shrinking since the turn of the century. I believe this data is consistent with an increasing proportion of retirees to the Japanese population as a whole; as once the breadwinner retires income shrinks to whatever pension/social security payments are forthcoming and the households of retirees start to spend the savings that they have accumulated over the years to make up for the drop-off in income. This shouldn't be surprising as the whole point of saving during one's working years is to provide for retirement. The tricky part is making sure you have enough savings to last until you die.

The problem from a national perspective is that due to the need for retirees to spend their savings, the national investment capital base is beginning to shrink. For the most part, Japanese savers have their cash in domestic investments. The shrinkage of available investment capital will make it difficult for the country to come up with technological breakthroughs that would increase productivity enough for the working age population to cover the cash needs of the country's retirees.

A study by McKinsey and Co. projects that "the net financial wealth of Japanese households will decline 0.2% annually between 2003 and 2024." That projection ought to give Japanese leaders some sleepless nights.

Thursday, May 17, 2007

Japan's space program: an opportunity for growth?

by Scott Peterson

It seems to me that a sector that Japan could be a solid competitor globally would be in the commercial launch business. Basd on my cursory scan of the Japan Aerospace Exploration Agency's page on it's H-IIA-primary large-scale launch vehicle, the vehicle could be competitive
with other commercial launch ventures, such as International Launch Services and Sea-Launch.

In addition, investing in space exploration initiatives would provide high-paying jobs which should help domestic demand somewhat and could provide a source of national pride.

Development of a ballistic missile program would also generate jobs and would raise Japan's profile as a military force to be reckoned with. I don't think that Japan with a credible military is anything to be feared more than say the militaries of India or China.

The Bank of Japan's decision and the underlying data

The BoJ decided not to change the overnight rate, which was not a surprise. However data that was released in the same time frame is concerning. GDP data was released which showed that annualized Q1 GDP growth of 2.4%, was a sharp sequential decline from a revised 5.0% (previously 5.5%). SeekingAlpha quotes a Tokyo analyst to the effect that "the BoJ will hold at 0.5% over the next three to six months, since there is no hurry to hike while consumer prices are still falling"...continued deflation in consumer prices is a concern.

Having a significantly lower GDP number on top of a downward revision of the previous quarter's figure is not good. Recalibration of expectations for the next year for Japan's economy would be wise, I think.

Wednesday, May 16, 2007

Another high-value export possibility for Japanese manufacturers

Financial Times Deutschland posted a report recently that describes how "China's introduction of locally assembled Japanese "bullet trains" shows that the country has completed the transfer of foreign world-class high-speed rail technology, Beijing's Ministry of Railways has claimed. Lightly modified versions of Japan's E2-1000 Shinkansen went into service on lines around Shanghai recently but the rail ministry and official media have played down the trains' origins and instead stressed China's success in ‘‘ digesting'' foreign technology." According to the same report, China is planning on building "5,400km of high-speed lines in the four years from 2006." If Japanese firms can get a significant portion of that business, it would provide a good boost to the exports side of Japan's GDP books.

There is a potential stumbling block, however. As the above quote mentions, the fact that the high speed train technology came from Japan has been kept as low key as possible. The reason for this as described in the FTD article is that"Lingering Chinese anger at Tokyo's 1931-45 invasion means that purchases of Japanese technology are particularly sensitive, in spite of a recent thaw in bilateral diplomatic ties. Reports of the 2004 Shinkansen deal prompted internet protests and street demonstrations, and an initial batch of trains exported from Japan was shipped without the customary public ceremony."

So politcal relations between Japan and China represent a significant hurdle to increased exports from Japan to China. It is remarkable to me how the Japanese occupation of China remains such a sticking point. Relations between Japan and the United States have been very warm since World War II in spite of the fact that on the US side, Pearl Harbor and the massive number of deaths in the Pacific theater could be sore spots; and on the Japanese side, the nuclear bombings of two of its cities plus catastrophic bombings of other cities could provide fodder for discord even now.

Tuesday, May 15, 2007

Potential new export market for Japanese manufacturers

According to Aviation Today, "Boeing’s jetliner product rejuvenation coupled with Lockheed Martin’s F-35 and broad U.S. defense export market dominance means expansion of the United States’ share of the industry, and with it dominance in leading edge technologies in such areas as avionics."

The military aircraft sector seems like a logical business for a large Japanese conglomerate to invest in. Japan really should be building up a somewhat greater military for its own self-defense purposes, and a home-grown fighter/bomber would be a logical target for investment by the Japanese government. I'm sure that global purchasers of the US's military aircraft would like to see an additional alternative source down the road.

Monday, May 14, 2007

Exports and Mayonaise in Japan

By Claus Vistesen
(cross-post from Alpha.Sources)

Many things can be learned from the recent report on Japan's trade surplus which saw a whopping increase on 36.9% y-o-y in March.

Japan's current account surplus widened to a record in March, as exports to Asia and Europe helped counter slower growth in shipments to the U.S.

The surplus expanded 36.9 percent to 3.32 trillion yen ($28 billion) from a year earlier, the Ministry of Finance said in Tokyo today, more than the 2.95 trillion yen median estimate of 28 economists surveyed by Bloomberg News.

Today's report supports comments made this month by Asian finance ministers that growth in India and China will help the region withstand a slowdown in the U.S. and Europe. Japan's exports to China, which overtook the U.S. as its largest trade partner last year, surged 15 percent to a record in March.

First of all it appears that Japan is indeed decoupling from a trailing US economy but not as it were through an increase in domestic demand but rather through exports to China, Europe and India. A notable data point is the surge in the trade surplus of 62.1% in March and more specifically the 15% increase in exports towards China.

A second point is derived from the income balance which of course reflects the low interest rate environment and subsequent low yield environment for capital in Japan. Especially net revenue earned in foreign direct investment grew at a very healthy clip.

Meanwhile, much ado have been made of the recent gain in producer price inflation (wholesale inflation) which rose 2.2 percent y-o-y in April. Yet, the gain was mainly and quite naturally derived from energy and commodities which of course begs the question of what measures of inflation you want to look at? Also, as is customary when gauging Japanese inflation figures the odd data point stands out. Normally it is café lattés from Starbucks but this time around the focus is on mayonaise and salt where prices are set to go up on the back of the high commodity component in the production. More generally we should really try to think about the inflation dynamics in Japan and whether and to what extent producer prices will trickle down into consumer prices to any sustainable degree? Remember here at producer prices and especially those tied to commodities are for a large part tied to capex and as we saw above capex in Japan is mainly driven by booming exports. Essentially, as I and other Japan watchers have been arguing we are looking at a disconnect between the domestic economy and a capex driven export sector. This does not mean that PPI inflation won't perhaps make those consumer price figures look better but as always with the Japanese economy, textbook theory should be applied with caution.

Wednesday, May 09, 2007

The state of the Japanese stock market

by Scott Peterson


Carl T. Delfeld over at SeekingAlpha asks "Is Japan's Stock Market on a Downward Spiral?"...he points out a couple of facts that I hadn't noticed before:

-"Having comprised a third of global market capitalization in 1990, Japan's market capitalization is now less than one tenth that of the world's $49,900 bn"...

-"Michiyo Nakamoto of the Financial Times goes on to say that in a stark sign of Tokyo's decline, the number of foreign companies listed on the Tokyo Stock Exchange has plummeted from 125 in 1990 to just 25...all of this seems to highlight a lack of confidence and risk taking so vital to growth in financial services"...

I don't know what advantage there ever might have been to listing on the TSE for foreign companies, given that Japan's securities and accounting practices have been quite different from those in the US and the EU. The key point to me is that even if Japan's market cap has increased in absolute terms since 1990, the failure to keep up with the rest of the world is glaring. However, in 1990 Japan's market cap was at the peak of a bubble-driven bull market, and since then the unwinding of that peak has likely been the primary driver of the decrease in share of the world's market cap. So this information is probably not a great indicator of where things are headed for Japan.

Monday, May 07, 2007

Likely Effects of Interest Rate Hike by the Bank of Japan

by Scott Peterson

The Economist describes how "a few brave economists believe, to the contrary, that higher interest rates would actually encourage (Japanese)households to spend more, not less."

I thought the most interesting piece of information from that story was the fact that personal savings rates in Japan have actually been falling essentially since the ZIRP was put into place("the sharp fall in the saving rate during the long period of low interest rates, from 14% of income in 1993 to 3% last year. (Although Japanese households have a massive stock of saving, their saving rate out of new income is now low.") I don't think I've seen that fact mentioned often in the financial media. I think this shows that the Japanese households have been responding to interest rate policy as one would expect. It also shows that the interest rate policy has been biased toward supporting the export markets. I don't see that as necessarily unwise since the BoJ is looking at the same demographic projections that we are and probably expects that since domestic markets will shrink, it is better to focus on export industries.

The article makes a persuasive case for raising rates as far as how that would effect exporters, but ignores the demographic situation when it talks about what the effect on the consumer will be. I think that if rates were raised, that wouldn't necessarily increase personal saving, as the retiring Japanese are going to need to spend what they've saved to support themselves. Younger Japanese might save more, but the large mass of older Japanese are reaching that point where they have to stop saving and start spending.

The article mentions the higher cost of government debt briefly; I think that would be one of the biggest problems with raising rates. Japan's public debt is one of the world's largest, so that higher interest cost might not necessarily be offset by increased GDP(particularly in light of the shrinking consumer base).