This page has been archived and commenting is disabled.
Japan: Not Out of the Woods
My first reaction at seeing the headlines that the Japanese economy grew more than expected in July-Sept was excitement.
After all, the main news coming out of Japan has been gloom and doom recently (and see this).
But as Bloomberg points out:
The
acceleration of Japan’s economy to the fastest growth pace in more than
two years masked a slide in prices of goods and services that threatens
to temper the nation’s recovery...
Sustained price declines
threaten to curtail a corporate- profit rebound that’s already been
insufficient to spur a rally in Japan’s shares this quarter. The report
prompted Deputy Prime Minister Naoto Kan to say the government may
outline an emergency-spending package as soon as today, adding that
“I’m concerned we’re entering into a deflationary situation.”
“This
isn’t sustainable growth and the government knows it -- that’s
precisely why they’re talking about the GDP deflator,” said Junko
Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “On
the face of it, 4.8 percent growth is a positive for the Democrats, but
they’re not reading it as a reason to abandon their economic
policies”...
A report today showed that demand for services
unexpectedly fell for the first time in four months in September, a
sign that the effects of government stimulus measures may be fading...
“It
might be a decade before the job market returns to the level of health
we had a year or two ago,” [Hiromichi Shirakawa, chief Japan economist
at Credit Suisse Group AG in Tokyo, who used to work at the central
bank] said. “The number of jobs may recover but not wages. It’s very
fragile.”
And Nouriel Roubini does a great job of putting the Japanese GDP figures in perspective:
- Export growth was steady at 6.4% q/q, same pace as the previous quarter.
- Public investment no longer the fastest growing component of GDP. It decreased 1.2% q/q.
- Private residential investment continued to plunge (-7.7% q/q, -27.5% y/y in Q3)
- Private demand turned positive, up 1.0% q/q, 4.2% y/y, driven by consumption and commercial investment.
- Gross fixed capital formation again decreased 0.3% q/q, 1.3% y/y.
- GDP deflator slowed further to 0.2% q/q. Domestic demand deflator was -2.6% q/q.
- An inventory-driven rebound in exports to emerging markets may drive a cyclical recovery in Japan. However, a strong, sustained recovery is unlikely without a revival in domestic demand, which is currently on life support from fiscal stimulus packages. Excess capacity will continue to weigh on employment, dampening consumption. As RGE expected, fiscal stimulus lifted consumer spending in Q3 but the stimulus effect will fade going forward as public spending comes under strain from a heavy debt load.
- Louise
Curley of Haver Analytics: "It should be noted that the data are
preliminary and some of the components, notably the change in
inventories, is only updated during the 2nd preliminary release. Given
the volatility and the large positive and negative contributions of
inventory changes to total growth, as shown in the second chart, it is
highly likely that the missing element in Japan's third quarter growth
was due to inventory accumulation." - Takehiro Sato of Morgan
Stanley: "Economic strength overseas could allow Japan to avoid a sharp
retreat in October-December and January-March 2010...A
modest second dip in the economy will be inevitable in the first half
of FY2011 as the growth rate reacts to the drop in public investment...the second dip [will] be much shallower than...January-March this year." - Caroline Newhouse-Cohen of BNP: GDP growth may rebound slightly in Q2 & Q3 before a further fall in Q4.
GDP should thus fall more than 7% in 2009, its sharpest fall on record.
The drawdown in inventories is set to trigger an upswing in production
and exports over the coming months before economic activity contracts again toward the end of 2009 due to weak domestic demand despite the fiscal stimulus. - Mitsumaru
Kumagai of Daiwa: "Real GDP will decline 3.2% in FY2009 but increase
1.2% in FY2010. However, the possibility that Japan's economy will
experience a lull from end-2009 will increase, partly due to public
works spending running out of steam. In any event, Japan's economy is
unlikely to see a full-fledged recovery before FY2010 when the US
economy is expected to trace a firm uptrend."
Overview:
Japan's real GDP growth accelerated to 1.2% q/q (seasonally adjusted)
in Q3 2009, up from 0.7% in Q2, and stopped contracting on an annual
basis. 4.8% y/y growth in Q3 2009 ended a five quarter streak of
negative annual figures, thanks mostly to inventory restocking and a modest contribution from fiscal stimulus-driven household consumption. However, as Japan remains in deflation, nominal GDP growth figures present a more realistic picture of the economy: nominal GDP contracted 0.1% q/q, 0.3% y/y in Q3 (seasonally adjusted)...Beyond Q3 2009
In
other words, deflation us so severe in Japan that nominal GDP is
actually negative. And just as with the American economy, signs of
recovery are due to massive stimulus, and when heavy government
intervention ceases, the Japanese economy will probably contract again,
especially given the huge drag from massive debt.
- advertisements -
If only they had not raised rates from q4 1989 to 1991, this whole thing could have been averted. /s
Rates had to rise in Japan. Inflation had crept from property values into the cost of living. And man, property values were insane. Not just Ginza, but even around Shinjuku prices were millions of US dollars a square foot. We have nothing on Japan in terms of CRE problems.
Policy rates should have risen sooner than '89. That would have prevented disaster.
Japan is clearly f****ed, and we are following the same trail of expensive spent ammunition straight to the abyss. I guess the yakuza exists here too, under a different name.
I worked for a bank that did a lot of business in Japan and Taiwan not too long ago. Taiwan had a massive balance sheet recession too because of capital flows from Hong Kong. Their different approaches show that there are different paths out of the situation if leaders are sensible and tough.
People in Taiwan were expected to get themselves out of the mess they were in, and banks that were viewed as taking advantage of others were just smoked. Somebody pulled out an old usury law, and everyone was suddenly shocked to find compound interest was being charged on the poor innocent. Outside creditors ate such massive write-offs that they left and didn't look back. Insiders just faded into the background and kept their heads down. Recovery was quick because Taiwanese are very sensible when kept far from Macao.
The Japanese reacted, as we have, purely to save the existing system. People stoically enduring policy stupidity. Grinding poverty that was never spoken about. Fears of currency crisis, followed by out of the blue market crashes. It was like a spring with heavy damping. Amazing amounts of stimulus would have only temporary effect because everyone was trying to compensate for government stupidity.
Sometimes complex systems have to be broken down and the surviving pieces reassembled before things get living energy again.
Sorry Steve, but superabundant shale gas can easily and cheaply be converted into diesel and kerosene thereby mitigating a significant portion of global crude oil demand. Furthermore the amount of new oil discovered in the last two years (offshore Brazil, Cuba, Mexico, as well as Uganda, DRC, Tanzania and a major new field in Iran equates to as much oil as in Russian Federation).
If that were not enough of a deflationary force on oil, the energy savings breakthroughs such as LED lights and incentivization for improved building insulation dramatically reduce demand per unit of GDP for energy.
And if that isn't sufficient, the price of solar panels reaching parity with retail grid electricity from natural gas inevitably will make a further giant dent in the Peak Oil/Gas theory.
And if that is still not enough we have every major auto company releasing hybrid electric vehicles over the next 24 months.
Deflation is not at all due to depletion of oil, but rather to a generalized capital overproduction crisis, which included overproduction of credit and inflated assets as well as the relative shrinkage of compensation of global labor.
If anything, oil demand is contracting in response to deflation of overall money supply (money + credit) combined with production capacity far in excess of purchasing power of labor.
And oil demand will continue to diminish in response to energy conservation technologies, affordable solar panels and hybrid vehicles.
Peak Oil/Gas and other bogus Malthusian theories R.I.P.
You win the prize for longest post without an ounce of truth in it. Step by step:
False, shale gas cannot be cheaply converted (in either the money or energy efficiency sense) into diesel and kerosene. Extraction and refining process of shale is extremely energy intensive.
This is not a sentence, so it can't really be classified as either true or false, but I think the point was a lot of oil was discovered recently. Most of it was heavy crude. The new discoveries will not be enough to make up the lost production at Gwanar and other old mega-resevoirs.
Just about the dumbest thing I've read here for a good while. LED light and insulation will save us from energy crisis. By this point I realized you were truly clueless but had to reply anyway.
Solar power is indeed getting less expensive and showing a lot of promise, but its infrastructure needs a lot more work.
You can believe all you want in limitless oil, but it is simply foolhardy. We are past peak oil, and we are past a lot of other peak production periods for other resources. All you have to do is look for the efficiency of each resource extraction (nevermind the increasing transportation costs, both financial and energy) to get a grasp of how bad the picture really is. Both efficiency and productin going down means loss of energy at an exponential rate.
a) The Japanese have had twenty- five years to 'lose' the debt. They didn't ...
b) The Japanese are almost 100% dependent upon imported oil. Their economy must 'play the spread' between what the oil costs and what returns can be 'gamed' from that oil and the oil- expensive supporting infrastructure. Oil not contributing to productivity but simply consumed is a charge against returns.
When that spread nears zero oil stops being a commodity and becomes 'money- like' instead. It gains more intrinsic value than does the real work done with it.
Since the oil currency 'basis' is shrinking due to depletion, the consequence is a massive gravitation deflationary force 'baked into' economies dependent upon it.
Roubini doesn't even come close.
I'm working on my prison memoirs at my estate before the neighbors lynch me as I have shorted all of their homes. I figure when I am in prison I will be too busy protecting my backside to get any good writing in, so I want to get them finished now.