Japanese GDP Deflator Plunges To Multi-Year Low As GDP Comes Below Expectations

Tyler Durden's picture

Japan just announced its annualized Q1 GDP, which came in at 4.9%, well below the survey consensus of  5.5%. Yet while the country's subpar economic performance was not too surprising, the deflator came in at a massive -3%, indicating that in the second decade after the country first set off to prove that Keynesianism works when public debt is somewhere north of 100% it still have to find success. Our only concern is that Bernanke is all too aware of this data as well, and he will not stop at anything to reflate, even if that means a $5, $15 or $500 trillion Fed balance sheet.

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EconomicDisconnect's picture

Try to remember the Keys think Japan failed because they went too small into QE.  Think about this and the following quote:


I'm, I'm sorry but update me please... why is it that we've doubled the money supply of dollars around the world... how could we possibly have the opposite of inflation? - Dennis Kneale, May 18, 2010



uformula's picture


Regarding the Quote.......For the US at least Debt deflation is more powerful, the Fed has doubled the money supply, but there is a lot more debt.  Deflation will continue until there's a severe crisis of confidence in the dollar.  There won't be one for a while because we are next to last in line.  Looking for possible hyperinflation?  Try the UK.  Keep an eye on the Gilts....that may be the bomb.


Cognitive Dissonance's picture

Poor Dennis Kneale.

To steal a wonderful quote from Tyler, Dennis fell out of the stupid tree, hitting every stupid branch on the way down. And if I may add, Dennis bounced off the last stupid branch only to fall into the stupid briar patch, home to a family of unhappy stupid skunks, all before his stupid breakfast.

mikla's picture

Sadly, all those things actually made Dennis Kneale *smarter* than when he started out.

Assetman's picture

Japan failed because they did not use QE as a mechanism to bolster bank balance sheets and force painful liquidations. 

They could have started with a more robust QE, but they didn't have a plan for removing debt from the system, anyway.

What they did manage to do was transfer risk to the sovereign-- and allow banks the priviledge to suck the life out their own economy by eventually taxing the crap out an over saving populous. 

Sound remotely familiar? 

Interestingly enough, the Fed did use QE and ZIRP as mechanisms for banks to build siginificant reserves.  Some banks took that as a sign to pay massive bonuses versus building a fortress for leaner days.  Those be the real "zombies".

We are going to be finding out real soon whether Bennie Mae forces the liquidation process, or whether he turns the money printing operation into a major money laundering enterprise. 

In the meantime, Timmy Boy better be lining up the new issue docket big time, while the timing is still good.

AUD's picture

Easy, everyone, including you Dennis (unless you have your entire capital in gold), is desperate to lend to the government.

At present it doesn't seem to matter how much borrowing the government does, they cannot force interest rates to rise.

My theory is that the money market, as much as it consists of private debt, is more or less dead. But ultimately the soundness of government debt depends on the productive capacity of the private sector. We probably need another catastrophic war to create some new 'opportunities'.


ozziindaus's picture

4.9% is great by most measures. Better than the US.


BTW, Benny is hardly reflating. Those days ended a few years ago and besides it doesn't matter if he did. It's public credit demand, or lack of, that's driving the money supply. No credit worthy borrower wants to indebt themselves any further and no credit worthless debtor can borrow.


AUD's picture

Agreed. The RBA here in Australia is doing its best not to inflate anyway.

To late though. I think once you head down the inflationary road, you cannot turn back without politically unpalatable consequences. Since central banks are government institutions (yes, even the Fed), they have no choice but to acquiesce to government dictate.

Interesting article on www.marketskeptics.com this morning.

Rick64's picture

 Since central banks are government institutions (yes, even the Fed),

The FED is a private institution. This plan of endless printing is BB's and the FED. Remember BB is the so called historical expert on the Great Depression. He wants to avoid all the mistakes that happened in that depression. Avoid the double dip at all costs ( if this happens then confidence in the markets will be destroyed and will signal a depression instead of a recession) flood the market with liquidity and cook the books like there is no tomorrow.

Rick64's picture

The Federal Reserve describes its structure as composed of five parts:[12][13]

  1. The presidentially appointed Board of Governors, an independent federal government agency located in Washington, D.C.
  2. The Federal Open Market Committee (FOMC), which oversees Open Market Operations, the principal tool of national monetary policy.
  3. Twelve regional privately-owned Federal Reserve Banks located in major cities throughout the nation, which divide the nation into 12 districts, acting as fiscal agents for the U.S. Treasury, each with its own nine-member board of directors.
  4. Numerous other private U.S. member banks, which subscribe to required amounts of non-transferable stock in their regional Federal Reserve Banks.
  5. Various advisory councils.[14
lookma's picture

Don't forget about the Government granted monopoly privilege of controlling legal tender

lawton's picture

Is that 4.9% only because of stimulus programs and restocking like the US at the present time?

Tic tock's picture

Ya think The Fed is concerned about fundamentals!? 

RobotTrader's picture

With the entire globe rushing and panicking into U.S. Treasuries, dollars skyrocketing, and the CRB Index in a freefall...

I don't know what is holding Bernanke back from firing up the afterburners and expanding the Fed balance sheet to $5 trillion immediately.

If the Fed were to do an IPO right now, it would be 500% oversubscribed...


SteveNYC's picture

Probably the yield explosion at the long end of the curve. Ben has to tread very, very carefully. Rd 1 QE gave us a market and commodity mini-bubble, with yields hitting the "pain threshold" even while Bernank-clown was buying.

More of the same, yields on T's may explode, blowing apart any hope he had of the mortgage/real estate market even bottoming.

Ben is likely to sit tight.

Mr Lennon Hendrix's picture

Sit tight doing what?  Playing Nintendo Wii's new game, "Bankster Takeover"?

ozziindaus's picture

Steve, you're right. If the FR was to print like most on this sight thinks he can, then that would send a clear message to the bond markets which would result in yields on "afterburners". The FR has to protect itself just like most private companies and individuals. Why would they give their most precious commodity away without having it securitized by the US government? All the evidence is in the M3 and bond yields.

But back to my point below, it's not that the FR even needs to stimulate when their is no demand for it.

HarryWanger's picture

EUR sinking fast again. Tomorrow should be quite ugly indeed.

Matto's picture

Hi harry, welcome to the party.

silvertrain's picture

 Hey Harry..Yeah, its taking its evening dip it looks like..


reading's picture

I might agree except it is OE so anything can happen from here.  Up 1000, down 1,000 who knows anymore.


Mr Lennon Hendrix's picture

The futures are green man, you are harshing my mellow.

chindit13's picture

The hypnotic power of Zero Hedge...takes Little Mary Sunshine and turns her into Stormy Monday.

Kidding aside, I might as well use the bandwidth to make a point. Another person posted this link, but I cannot find it again for attribution. So I will repeat, and note that the figures for these major bank delinquencies do not yet include Q1-2010. We know from data released yesterday that this has subsequently deteriorated. In order of "pull your money out before it's too late", we go WFC, JPM.


Al Huxley's picture

This is an outstanding link.  Anybody with illusions as to the situation of the US banks would be well advised to check it out.

Matto's picture

WHOOP WHOOPP!! What a link!!


Bye Bye JPM, Bye Bye.

Mr Lennon Hendrix's picture

cnbc just said Japan has a huge growth.  Its not a tumer.  Let us not worry; party party!!!

Grand Supercycle's picture


EURUSD buying support is still evident.

Daily chart is now extremely oversold, will post a chart soon.



Deflationburger with Fleas's picture

I've criticized Harry a lot for being a permabull, but at least the guy has a view and has stuck to it.  He had in his mind a technical indicator and stuck to it.  Kudos - I like that much better than a lot of the flip flopping bullshit that goes on on a daily basis.

Al Huxley's picture

Agreed, I made a similar comment yesterday.  Kudos to anybody who can demonstrate a willingness to try and follow the market, as opposed to the noise of the cheerleaders on CNBC (and Bloomberg, etc...)

Al Huxley's picture

That said, I think there's a 50-50 chance we see a relief rally tomorrow.  Global markets are pretty oversold on a short-term basis, and alot of the market internals are approaching inflection points.  I sold alot of my short-dated puts today

Al Huxley's picture

Does this still matter?  The recovery and the 'bull market' have been exposed for the frauds that they were, volatility is skyrocketing, markets are collapsing, reality is finally re-asserting itself.  At this point, does anybody care what the central banks or analysts say or do?  Their ultimate impotence has been demonstrated.

JR's picture

This spring college graduates face an economic world quite unlike the Alice in Wonderland nonsensical world of economic prosperity the Fed describes, hoping its lie will keep the pretend markets from collapsing.  Most likely the unemployed grads will face the economic memory hole where all the Fed’s inconvenient or embarrassing economic casualties disappear—graduates without futures, the unemployed, the underemployed, impoverished savers and pensioners, homeless homeowners, defrauded investors, the city of Detroit…

These are a few excerpts from Toughest Test Comes After Graduation: Getting a Job | USA Today |05/19/10

About 2.4 million students will graduate with bachelor's and associates degrees as part of the Class of 2010, says the National Center for Education Statistics.

Those job-seekers will go head-to-head not only with fellow classmates but also with laid-off workers, financially strapped retirees and still-unemployed 2009 and 2008 grads. There are more than five job seekers for every opening, according to Bureau of Labor Statistics figures analyzed by outplacement firm Challenger Gray & Christmas…

Fewer than half of employers – 44% – plan to hire recent college grads in 2010, according to a CareerBuilder survey. That's about the same as last year but down from 58% in 2008 and 79% in 2007. CareerBuilder is jointly owned by Tribune, McClatchy, Microsoft and USA TODAY parent Gannett. A separate poll from Monster.com also found that fewer than half of employers (46%) plan to hire spring college grads for full-time positions this year…

That's dismal news for most grads, but it's especially daunting for those with massive student loan debt. Two-thirds of those graduating with a bachelor's degree are saddled with an average of $23,186 in federal and private loans, says Monster's director of advanced projects Mark Kantrowitz…

Among 2009 U.S. college graduates, 80% moved back home with their parents after graduation, according to a poll by entry-level job site CollegeGrad.com. That's up from 77% in 2008, 73% in 2007 and 67% in 2006…

This year, 39% of college seniors polled by NACE said they had received job offers, and 59% of those students took the job. In 2009, 40% of responding seniors were offered jobs, but 45% accepted them…


MisesFTW's picture

Time to join the army, they are always hiring and paying off student loans as well.

godfader's picture

It is hilarious how many people here claim Japan "failed". The Japanese private sector suffered a wealth destruction of 1500 trillion yen ($16 trillion -- thats 4 years worth of GDP!) 1990-2010, while GDP (!) stayed flat on an inflation adjusted basis during the same time frame.

That is an amazing accomplishment, considering that Japan's real GDP never dropped 35% nor did industrial production plunge 75% like in the 30s in the US.

If anything and considering all the mis-steps and problems the Japanese had and still have today one still has to come to the conclusion that the Japanese experience was a tremendous success, especially considering the alternative outcome scenarios.

chindit13's picture

I would suggest that Japan post Bubble Economy and the US experience in the 1930's are not comparable. Japan was lucky enough to blow up when half of the world's population was attempting to lift itself from poverty, so its downside was supported by enormous growth in Asia. In the 1930's, virtually the entire world was in a depression, and central banking, as well as Keynesian-type Economics, was in its infancy.

Japan is hardly out of the woods yet. With the highest Government debt/GDP of any developed country, and a savings rate that went from 17% in 1990 to zero in 2010, it has little wiggle room left. It robbed its national pension assets as well to tide the country over. The underfunding of that system, plus its National Savings (Yucho) and National Insurance (Kampo), makes the Enron pension look good.

To get some idea of how Japan might fare in a new worldwide depression, look at its Industrial Production figures for the second half of 2008 (-35%).

As one who lived (and traded on a prop desk) for the latter part of the 80's Bubble and through the collapse, I can tell you that Japan is a vastly different place than it was in 1989. This is noticeable in Tokyo, but even more apparent in the "inaka", where it is beginning to look a lot like 1930's America.

JR's picture

Brilliant hands-on summation, Chindit13.

Instant Karma's picture

The only way to combat deflation if people are reluctant to spend money or take on more debt is to literally give money away. Hence, we should cut all personal income taxes, double all government checks for unemployment, social security, etc., and, for the employed a full refund of last years contributions to Social Security and Federal Income taxes. That should fend off deflation. All debt issuance to pay for these massive expenditures should be in the form of 0% yielding 30 year bonds which the Fed will buy.