Japan Continues To Grow

I think there is a pretty fair and balanced assessment of the current Japan situation by David Turner in today's FT. He makes the following points:

1/. Japan’s economy continued to grow slowly but surely in the third quarter, supported by heavy investment by companies and moderate growth in consumer spending.

2/. The world’s second largest economy was expanding despite a negative contribution from trade. The country’s trade surplus in the period had narrowed on high crude oil prices, reducing overall GDP by 0.1 per cent.

3/. Corporate investment remained one of the high points of the economy, as companies took advantage of continuing high profits. Capital spending rose 0.7 per cent.

4/. The real-term rise in third-quarter GDP was also the slowest this year, compared with the 0.8 per cent growth in the June quarter. Recent data on household spending, such as retail sales, have disappointed economists. Although Japanese consumers are spending more, the country is still far from a consumption boom.

5/. There have been encouraging signs which point to the end of deflation. Property prices are at last rising in Tokyo....At the same time, residential property prices continue to fall throughout most of Japan. Moreover, the Cabinet Office said on Friday that the GDP deflator – which some economists favour as a broad measure of inflation – was 1.1 per cent down on the year.

Don't Speak To Soon

Don't Speak To Soon

I have been arguing continuously for some months now that Japan might not escape the deflation trap so easily as some seem to imagine. Today there are two pieces of news which should at least give the 'optimists' some pause for thought.

Firstly the news that Japan's economy most likely slowed in the third quarter, with one of the principal explanations being the lack of dynamism in the consumer sector.

Secondly Morgan Stanley's Takehiro Sato suggests that negative influences on prices may mean that y-o-y positive prices may still be quite a time away.

Based on the above, it is clear that the scenario calling for the BoJ to eliminate quantitative easing owing to a slight recovery in the core CPI inflation rate is now on unexpectedly shaky ground. Even if the BoJ is compelled to keep its commitment and eliminate quantitative easing, the factors affecting whether it will be able to follow that move fairly soon with rate hikes as currently planned are becoming even less certain over the near term.

The BoJ is Convinced

The entire nine-member board of the Bank of Japan is convinced that deflation in Japan will be over by the end of this year: I only wish I was.

Minutes of the bank's board meeting earlier this month show board members expect year-on-year changes in consumer prices to be zero or to rise slightly at the end of the year.

In recent weeks, senior members of the BoJ, including governor Toshihiko Fukui, have been making statements saying the time is approaching when the bank can consider abandoning quantitative easing and considering raising interest rates.

Happy birthday Japan

Happy birthday Japan, welcome to year one of your new era. December 31st will mark the first anniversary of when your population actually started to fall, and from now on each year will see less and less Japanese citizens in the land of the setting sun. Another way of putting this would be that the proportion of robots to people is definitely set to rise there.

This turning point in human history is not necessarily a bad thing, it is, after all, partly a product of the fact that we get to live longer. The worrying thing is the blasé fashion in which we seem to be treating it. Typical of this are the statements by the Japanese Health, Labour and Welfare minister:


economy has emerged from seven years of deflation and reinforcing expectations of a change in monetary policy".

That certainly sounds like good news, but hang on a minute:

The yen fell the most against the euro in more than two months and dropped versus the dollar after reports showed a surprise drop in Japan's household spending and an increase in the jobless rate.

Japan's currency is down 12 percent against the dollar this year as the Bank of Japan held interest rates near zero to combat falling consumer prices. Finance Minister Sadakazu Tanigaki said today deflation ``still persists'' even after prices rose last month for the first time in two years.

``The weaker data confirms it's going to take quite a while for the BOJ to be able to act, even if consumer prices rise,'' said Niels From, a currency strategist at WestLB AG in Dusseldorf, Germany. ``The yen will continue to weaken for now.''

So we aren't out of the deflation woods yet, and consumer spending - whilst being markedly better than at some moments in the past - still isn't as solid as it might be. Hmmmm. Isn't it better to hedge our bets a bit more here. Especially when there are sound theoretical reasons for doubting internal consumption sustainability.


"Our country is now standing at a major turning point in terms of population," Health, Labor and Welfare Minister Jiro Kawasaki told a news conference. "We must take countermeasures against the falling birthrate along with measures to support and foster our future generations,"

This might have been a credible response a decade or so ago, but today it is almost laughable.

Meantime "hope eternal" struggles-on. Japan is still the best story in town we are cheerfully informed by Buttonwood in an article entitled Sweet Spot. Well if this is the best show, I'd certainly hate to see the worst one :).

Now, there are more conflicting signals in the press today:

Japan’s core consumer prices rose in November for the first time in two years, the FT tells us "sending the strongest signal yet that the world’s second-biggest