December 11, 2004


Growth gap gapes at Japan: Both production and jobless figures in Japan for October are worse than had been widely expected. But many don't see this as a further sign of a slowdown just yet. For them, especially the government, it is still just a "gap" between expectations and reality. (Richard Hanson, 12/01/04, Asia Times)

[I]t is unlikely that government policy - including a squeeze on fiscal spending - will change very much until there are serious signs that the economy is beginning to slow, or at least has entered a turning point. Some private sector economists predict that Japan's economy has already come to the end of what has been a six-quarter expansion, supported partly by exports to China and the US.

"There are no strong props in sight," said Philip A Jones, an economist for Fitch Ratings, which rates bank and sovereign debt. Jones sees no strong replacement for the boost that exports to China provided. In his scenario, exports will definitely slow down.

Two earlier periods of recovery cycles following the bursting of the late 1980s investment "bubble" ended that way. From the mid-1990s, the economy was propped up once by heavy government spending and again by over-optimistic anticipation of an early resolution of the banking industry's huge overhang of non-performing loans.

According to Jones, "The downward cycle may not be a so severe this time."

If you can't grasp that the downward cycle has been continuous since the '80s and is ongoing then your expectations are bound to mislead you.

Posted by Orrin Judd at December 11, 2004 7:40 PM

Japanese currency is too strong, thus their exports are too expensive. However, assuming Japan were to buy foreign currencies in an effort to increase its exports, it would be crushed by the increasingly high prices for its raw materials.

Japan is export-dependent, not driven by an internal market like the US or arguably the EU. When this is combined with its dependence on raw materials imported from abroad, it is readily apparent in what kind of vise their system is trapped.

Posted by: Bart at December 12, 2004 3:05 AM

Most of Japan's problems would go away if the Japanese would just liquidate their bad debts.

Posted by: Chris Durnell at December 13, 2004 11:10 AM

If they wrote off their bad debts, the capital structure of their banking industry would collapse overnight and with it much of the world's investment potential. Of course, it can be rebuilt but that takes time and there will be significant increase in risk premium as a result.

Posted by: Bart at December 13, 2004 8:01 PM

Sometimes I wonder if you guys went to public school or not.

Although China's economy is growing faster, as a percentage, than Japan's, Japan's is so much bigger that it is still growing faster absolutely.

I'll take them odds any day.

Posted by: Harry Eagar at December 14, 2004 12:09 AM


CHINA: $5.7 bilion GDP
JAPAN: $3.7 billion GDP

Source: International Monetary Fund

Japan has had no real growth for about a decade.

Posted by: Bart at December 14, 2004 6:24 AM