This is my Day-to-Day Weblog on the Japanese Economy. For More Detailed In-Depth Commentary, Analysis and Links on Japan's Continuing Economic Crisis See the Japan Page on My Website

Japan's Job-Loss 'Recovery'


I'v made myself a promise to try and look a bit more at Japan this week, since I'm sure I've been neglecting things there. This piece serves to kill two birds with one stone, since it also relates to the ongoing 'structural reforms' theme. I think the argument demonstrates two things: that job creation is getting harder everywhere, and that the Asia Times (following

Japan Pensions: Where is the Incentive?

It seems that, little by little, the world is waking up to the importance of all this. Last week it was the Italian Minister of the Interior, this week it is the director of economic policy in Japan's cabinet office. When I started blogging about this, just over a year ago, it was much harder to get a hearing. This change is positive. OTOH too many people

Row Over Resona Bailout

This is obviously part of the backdrop to the election campaign, and it is always hard to judge the significance of things in this context. But Resona is interesting, since it is a strange case, and it could give us some clues as to the real determination for serious reform in Japan. On the face of it, not encouraging.The Democratic Party of Japan, the country's main

Japan Still On the Deflation Trail

Japan economy minister Takenaka tells us Japan will triumph over deflation. Just one last question: how? No, this isn't fair, he does offer some pointers. But it still remains to be seen what these actually mean in practice......Heizo Takenaka, Japan's economy minister, said on Thursday that the country could overcome its persistent deflation because the

Japan: Conflicting Signals?


Along with the renewed pressure from the Bank of Japan against the rise of the yen, here is one more small piece of evidence that all may not be as well as the markets imagine:Machinery orders placed by Japanese companies fell by a bigger-than-expected margin in August, according to official figures released on Wednesday, indicating an uncertain outlook for capital

Japan: Thrice Fooled?

Why do you blog. Sometimes for the simple comfort of knowing you are not alone. This time the case in point is Japan. I can't remember when I last saw anyone come out and say it straight as Richard Katz is doing here. His reasoning is fairly sound, the NPL problem is still there, structural reform has not gone as far as some claim, and the banking situation only seems

The Future of Japanese Savings


Well here's Eddie right on call with this week's Straits Times column, giving details on those Japan unemployment numbers, and some interesting and preoccupying background on Japanese saving: More and more Japanese are dipping into their savings to make ends meet, according to a survey by the Bank of Japan. A record 51 per cent of Japan's households said their

The Japanese 'Recovery' in Question

Blogging has been intermittent, not to say non-existent these last few days as I have been away on fieldwork. The world, however, has not stood still in my absence, and I have the feeling that some of the US data yesterday could turn out to be quitre significant. Certainly it seems that some of the underlying questions about where the principal OECD economies

The Economist and Japan's 'Dysflation'


I've been pretty quiet on Japan recently. This is because I think we need to wait and see what kind of reality there is behind the optimistic projections - and share prices - that we have been seeing recently. I don't think the problem, has gone away by any means. At best we are on the upswing of what remains of the business cycle in Japan. The economist

Good, or Bad, News From Japan?


A couple of interesting heterodox pieces on Japan. Michael Hann in the Guardian casts an extremely skeptical eye on what seems to be generalised 'spin' on the 'new tipping point'. Lehman Brothers is "encouraged by the fact that the main contribution to Japan's growth is coming from improved private-sector demand.........This is not simply an export-led recovery."

Doldrums Japan



Japan continues its weary path. Nothing especially new or surprising here, but clearly with the number 2 and the number 3 economies heading stubbornly downwards, you have to give some though to what might be the implications for the number 1 economy. Also there's more for Joerg's list here: the rising youth unemployment as the big firms flexibilise and re-structure.Economic data

Japan Continues Its Weary Path


I suppose there are some crumbs for Joerg here, the Japanese economy did in the end actually grow, if only by a measly 0.1%, during the first three months. It is important to remember that these are real figures, in nominal (money) terms, with deflation continuing, the economy actually shrank. Although, of course, with the Yen rising, the share of the world

Tunneling the Bottom of Japan's deflation Trap


A really rather unusual article from MS's Takehiro Saito, which argues that the decline in personal savings is not alarming since it is matched by a rise in corporate saving. This corporate saving will continue, he argues, since in deflationary times with a rising currency, and weak demand, cash, or domestic bonds (and in particular JGB's) are

Technological Solutions to the Zero Bound?


Thanks to Brad Delong for putting up this link to a zero bound article by two economists at the Dallas Fed. It is clear that, with a little imagination, the technology exits to overcome this as a technical problem. But if the deflation problem is not, essentially, a monetary one, the substantive problem still remains: what to do about it? Let's just

Beware the Dreaded Mr Yen


It seems there are more deflation doubters, doubters that this is simply monetary. Welcome to the world of Mr Yen. In dismissing his views, we wouldn't be running the risk of ethno-centrism, now would we? Oh, never mind........

'Mr Yen' proclaims new era of deflation


Japan is the forerunner in a global shift from an era of structural inflation to one of structural

Japan the Next Big Success Story?


Joerg is asking awkward questions. What is happening in Japan? But not the normal, nice conventional questions. Joerg has the temerity to ask whether Japan is really so bad as everyone is saying. I'll let him explain:As you know, I disagree with your determined pessimism regarding Japan. Recently, I came across an antiquarian economic history of Germany - more

Shooting Blanks in the Air

So the Bank of Japan has been caught in the act: intervening to no effect. Of course so long as the US authorities continue to be 'comfortable' with the fall, there is really little that the central banks can do. Mind you, these dollar denominated assets could be a real investment for the future. I mean printing yen and getting a peice of the US action, that has to be

Tightening the Deflationary Screws

Long term interest rates are dropping across the planet. Japan 10 year bonds are now at 0.555 per cent. Looks like we're settling in for the season:A leading Japanese business daily warned long-term interest rates were falling to historically low levels in Japan, the United States and Europe, amid fears of a deepening global deflationary trend. The yield on

Japan, Hong Kong, Taiwan: Indefinite Deflation


Obviously things look pretty different in Hong Kong to the way they seem in New York, Washington, Brussels and Frankfurt. Andy Xie again: Excess supplies of labor and capital continue to exert powerful deflationary pressure on East Asia. Export performance or the credit cycle may give the appearance for short periods that inflation is returning.

Japanese Bank Bailout


The decision to inject an estimated $17.7 billion into Japans fifth largest bank has set-off all manner of questions about the future of the 'reform' process, including questions about the survival of key economics minister Heizo Takenaka whose attempts to accurately reclassify the book value of bad debts are thought to have provoked the capital adequacy problem. On the

Japan's Deflation Gathering Speed


David Pilling from Tokyo, on how the rate of deflation in Japan is accelerating. Not good news.And just as I was getting used to talking about the 'slow burn' deflation.The rise in the yen isn't going to help any, either.Japanese deflation gathered pace in the first quarter with year-on-year prices falling 3.5 per cent - their fastest drop on record. The fall

The Liquidity Trap: A Sticky Problem

Brad has a number of posts this week on the liquidity trap problem (and here and here . Two points occur to me: firstly, is it more than a merely semantic point whether we are 'fast approaching' or "already caught in the orbit" of one; and secondly whether (as Joerg asks me) the name is not a misnomer, wouldn't 'viscosity trap' be a better description?

Money To Burn

Too much money, that's Andy Xie's explanation of where we are. I suspect he may be right, understanding why there may be too much money is another matter altogether.
You are holding cash and the interest rate is zero. The bank in which you keep your money pays dividends equal to 5% of the stock value. Then your friendly private banker calls you up and confidently explains that

Nikkei Drifts Lower as Yen Rises


The Japanese markets are drawing the logical conclusion from the weaker dollar: less exports, less profitability, weaker 'recovery' etc. Tokyo stocks were lower in midday trade on Thursday as the shares of the country's largest exporters tumbled, after the dollar fell to a 10-month low against the yen overnight. The benchmark Nikkei 225 average was 0.7 per cent

Yen-Dollar: Japan Loses No-contest Test of Strength


Just a snippet from Reuters about yesterday's yen-dollar no-contest to illustrate what I have been saying in earlier posts.
The dollar hit a 10-month low versus the yen on Wednesday in a rapid sell-off that tested Japan's resolve to protect its vital export sector by keeping its currency weak against the greenback and the euro. "I think the

Japan's Zombie Warehouse


This looks like another non-starter 'jump-start' for Japan's continuing problems. The Industrial Revitalisation Corporation is to spend $84 billion buying up bad loans: this sounds fine, it's the bit about reselling them back to the market at break-even prices that should make you start to wonder. If this was half-way serious it would be buying up the debts to write

More Monetary Easing in Japan


The Bank of Japan is increasing its target for current accounts again. This is also known as monetary easing. This means effectively there is plenty of money in the banking system, the big question is whether risk averse bankers, whose own entities are not in-themselves that healthy will be willing to lend much of it. Past evidence suggests they won't, and that the

China to Japan: Pass the Batton Mate

David Pilling, definitely the man to watch at the FT ( sorry Brad ) has some sound sense for us about Japan/China relations. Meanwhile I'm afraid I don't buy at all the thesis that China is good news for Latin America - my god why do I have to be so contrarian, anybody got a good astrological calendar handy, I must have been born under a bad, bad moon:

Japan: Yet Another 20 Year Low?


Yes I'm afraid so. The only point of interest seems to be when will it stretch to become a 21 year one. But seriously folks, amidst all the talk that the Japan bubble burst at the end of the 80's it's easy to forget that during the last two years - effectively since Koizumi came to office to put things straight - the Nikkei is down 45%. If there is such a thing

Japan: The Rush to Bonds Continues

While the floor continues to fall out of the equity markets, the queue to buy bonds lengthens. Consequence: the yield on ten year bonds hits another historic low, and deflation expectations become more entrenched than ever.The yield on the benchmark 10-year Japanese government bond hit a historic low on Monday, as investors flocked to the safe haven of JGBs

Japan: Nikkei Continues to Plumb the Depths


Another new twenty year low, and five straight sessions going down. Little Easter cheer from Japan. Japanese stocks plumbed a new 20-year low on Monday, as worries regarding the global economy in the wake of the Iraq war ceased to abate. Downward pressure was exacerbated by pension-fund selling.


The benchmark Nikkei 225 average was off 0.8 per cent

Nikkei Back Down Below 8,000


In a sign of what may be in store for the post-war equity markets, the Nikkei fell below 8,000 today. With worries about Sars rising, Europe full of euro-related low groth problems, and the US job and profitability situation all focusing attention, it's hard to see a strong rally any time sooon. God, I can still remember that it was only March last year that we were

Reform at the Bank of Japan?


The BoJ has decided to proceed with its plan for buying asset-backed securities (ABS's) in particular by buying securities from small and medium-sized enterprises, and to conduct this activity as a routine part of its monetary operations - even if only on a temporary basis - over the next few years. This was decided at the 7, 9 April meeting by a majority vote of

Japan's Continuing Economic Crisis

One day or another Japan unfortunately is going to burst. Left on its present course, like the proverbial nineteenth century steamship with the boiler overheating, one day one too many of the bolts will sheer off, a boiler plate will give and then the devil take the hindmost. Of course one of the few debateable points remaining is whether or not there is

Japan a Lost Decade


A number of hypotheses have been presented to explain Japan's continuing economic failure since the beginning of the ninetees: inadequate fiscal policy, the liquidity trap, depressed investment due to over-investment during the "bubble" period of the late 1980s and early 1990s, a broken banking system due to a combination of the former, outdated labour market and work

Japanese Saving Moves Towards Negative Territory


I'm really not sure what importance to put on this, but it does seem in line with the idea that demographics, and the life cycle model, have something to say about what is happening in Japan. It seems to fit my picture nicely, which is why I'm cautious. There isn't going to be anything to cheer about here. Despite a worsening income environment

Japanese Intevene Heavily to keep Yen from Rising


The Bank of Japan intervened heavily in March, spending the double of what it spent in February. The only remaining question: just what would have been the yen/dollar rate without this intervention? The Bank of Japan stepped up its efforts to prevent the yen strengthening in March, according to official data that confirmed traders' suspicions

Japanese Industrial Production Falls in February


Japan's industrial production fell 1.7 percent in February from a month earlier on a seasonally adjusted basis, preliminary data from the Ministry of Economy, Trade and Industry (METI) showed on Monday. That was worse than a median forecast of a 0.9 percent fall in a Reuters survey of 19 economists conducted last week. METI forecast manufacturers

Nikkei Closes Year Below 8,000

It's not clear what consequences this will have, but it is certainly not good news. Tokyo share prices fell below the 8,000 yen mark on Monday to close fiscal 2002's trading amid fears that the U.S. led war against Iraq will be prolonged.The sharp decline will certainly hurt the business results of many companies and commercial banks over the current business year

Japan Deflation Continues


Despite the recent oil price rise, Japan just registered its 23 consecutive month of retail sales decline. Japan's nationwide retail sales have fallen 0.2 percent in February from a year ago, their 23rd straight month of decline. The drop compares with 2.6 percent fall in January and a 3.4 percent decline in December, the Ministry of Economy, Trade and Industry (METI).

BoJ Emergency Meeting Disappoints

The Bank of Japan, which met earlier today for an emergency session, voted to increase the purchase of shares from Japan's struggling banks, but stopped well short of taking the radical anti-deflation measures some had expected. The measures agreed upon fall far short of the 'unorthodox' measures that many have been calling for, and seem to cast rather a long

New BoJ Governor: Actions Will Speak Louder Than Words


The traditional sport of governor watching will take a new turn this week with Toshihiko Fukui taking over as governor of the Bank of Japan on Thursday. Commentators are already hanging on his every word looking, almost hope against hope, for some sign of change. My own view is we will have to wait: to wait and see what lies behind the

Why All the Fuss About Deflation

Deflation is a generalised and sustained fall in prices, with the emphasis on generalised and sustained. At any given time, especially in a low-inflation economy like that of our recent times, prices of some goods and services will be falling. Price declines in a specific sector may occur because productivity is rising and costs are falling more quickly in that

Effects of Information Technology and Aging Work Force on Labor Demand and Technological Progress in Japanese Industries: 1980- 1998
Kiyohiko G. Nishimura, Kazunori Minetaki, Masato Shirai, Futoshi Kurokawa

This paper raises many very important issues relating to the continuing economic crisis in Japan. In particular insofar as it relates to questions concerning the impact of new technologies on

To Monetise or Not to Monetise, That is not the Question

Curious how almost everyone who's anyone in New York or Washington thinks that the Japanese problem has a monetary solution, while almost everyone who's anyone in Tokyo disagrees. This time it's the turn of Morgan Stanley's Robert Alan Feldman.Is it too late for Japan? The monetization is now complete along the yield curve. European

Japan: Let the Fiddler Play On


More on divining the entrails in Japan. Much recent western comment has been mildly optimistic on the possibility of serious change and reform in Japan. Japanese commentators meanwhile, when not actually banging their heads against the wall, seem to spend most of their time tearing their hair out. This piece from the Asahi Shinbun's Senior Staff writer is pretty

Japan: Which Side Are You ON?


I'm posting this piece from Morgan Stanley's Takehiro Sato since, apart from anything else, it is a hoot. Trying to make sense of what happens in Japan is difficult at the best of times, but when a market oriented party starts to socialise the economy, and the ex-communists begin to demand market based measures, well, I think we move from the world of the sublime

If there is one thing I have learnt in following the Japanese economy closely over the last couple of years it is that, as far as Japan is concerned, you should take everything with a big pinch of salt. Still, the Nikkei is at a twenty year low, that is real and that is a fact. This week Forbes suggests it could fall below the 8,000 level, and that with year-end book-balancing in sight. They also

Down and Down We Go Again


Of course, all this continuing economic uncertainty is doing nothing to revive interest in buying shares in the stock markets. Yesterday it was Japans turn with the Nikkei howevring near two decade lows and the Topix falling straight through.Tokyo shares fell on Friday morning after a speech by George W. Bush, the US president, increased market nerves, while a report

Japan: Long Term Yields Continue to Fall


Yes, deflation in Japan is definitely settling down for the long haul. Ten year yields of government bonds hit a historic low of 0.74 per cent today indicating that investors have no belief in recovery any time soon. One passing thought, all the commentaries on Japan make the comparison with 1930s style dramatic deflation. But what we are seeing in Japan

Meanwhile Back at the Coal Face

Whatever the merits or otherwise of new appointments, whether in the US or Japan, a reality check reveals one thing: things ain't gettin better, and fast.The pernicious deflation that has plagued the Japanese economy showed no signs of alleviating in January while unemployment hit a postwar high, underlining the challenges facing Toshihiko Fukui, the

A Spot of the Right Stuff at the BoJ?

Mein Gott, I can't believe it. Richard Katz, a Japan commentator I don't always agree with but who I do respect, has come out and said the unsayable, Toshihiko Fukui is the right man in the right job. (In fairness many pragmatic commentators inside Japan had been coming round to this view, this and the view that the important thing is not just the head man,

Bank of Japan: the Speculation is Over

Well finally the speculation is over, and Japan has got a new governor for its central bank. Much to the sighs of disappointment across the planet, the newcomer is not an inflation targeter, in fact he is a tried and trusted member of the old guard, so in theory this means more of the same. But since nothing is ever completely predictable, and even less so

Japan Prepares to Say Farewell to Hayami

Central bankers are a select group. Some like Alan Greenspan, Wim Duisenberg, Eddie George become household names. Others seem more comfortable with obscurity (the is not the same thing as obscurantism which is undoubtedly Duisenbergs best known attribute). Masaru Hayami, who will complete this month his five-year term as governor at the Bank of Japan,

The Economist: Giving Up on Japan?

This weeks Economist piece on Japan almost sounds demoralised and despondent. Are they coming near to throwing the towel in. The article's author doesn't even seem to believe the BoJ will be headed by a deflation targeter any more (they are probably right on this: in fact those like me with a warped sense of humour are begining to imagine the whole Nobuyuki

Two Views on the Doha Round

It is an obvious truism that how you feel about something is often a result of where you are looking from. Below I post the example of two contrasting views concerning proposed Doha round changes to agricultural tarrifs and farm subsidies, one from Japan and the other from India. Those who are opposed to globalisation in itself will doubtless find here yet more

Japan Back in Reverse Gear

More bad, bad news from Japan.The economy has begun, once again, to contract. You could call it the incredible shrinking economy, were it not for the fact that humour seems to be out of place here, and that these results may give us a pointer to what's in store for the rest of us if I'm even halfway right about the root cause. Apart from the downturn, also worthy of

Japan Preparing to Oppose Agricultural Reform at the WTO

Japan and the European Union look set to be the two holdouts against freer trade in agricultural products when the World Trade Organization meets informally in Tokyo next week.The trade and agriculture ministers of the WTO member states will be gathering as part of the latest round of multilateral trade negotiations that began with the

Japan Pensions: The Unkindest Cut

One of the less palatable consequences of deflation is of course the reality that what goes up can also come down, that systems where wages and pensions are effectively indexed to prices mean, that when prices come down, wages and pensions come down too. Of course, what is less well studied is how such reductions will be received and understood by those on the

Japan Actively Intervenes to Keep the Yen Down

So much of the speculation was right. The Japanese yen definately isn't accompanying the euro on it's climb upwards - some things in life you just have to do alone - and they have spent this month alone 5.6 million dollars (in yen of course) to back their determination. The curious thing is that they tried to keep quiet about it. My feeling is that

Why Japan Matters

Morgan Stanley's Robert Alan Feldman points out, at a time when many seem to have forgotten that Japan exits, why Japan continues to matter.
Yet another way Japan matters is in helping to integrate China into the world economy. Compared to other countries, Japan trade with China is more complementary. Japan produces many things that China cannot produce for itself yet, and

The Bad News From Japan Continues

Unemployment up, GDP and consumer prices down, there certainly doesn't seem to be any end in sight for Japan's economic woes. Add to this the fact that industrial production contracted in December for the fourth consecutive month, and that the Nikkei touched 20 year lows this week, and it's easy to see there's little cause for optimism. Nevertheless some still

Japan - The Chinese Connection

The news that China is now the world's number one exporter to Japan has provoked considerable commentary inside Japan. From calls for a revaluation of the Chinese Yuan to recognition that the economic futures of the two countries are now inextricably linked. In particular proponents of the latter view draw attention to the fact that demand from China allowed Japan

Preoccupation Grows at Japan Government Debt


Judging by the historic low yields on Japanese government bonds (JGBs), the deflation that has racked the country's economy for almost four years is set to continue indefinitely. In interest rate terms it seems more a question of 'how low can you go'?Expectations of a sustainable recovery are clearly nowhere in sight: the yield on the benchmark 10-

Koizumi's Now You See Me, Now You Don't On Inflation Targeting

Japan watching can be a very frustrating business for economists. Last year we had economy minister Takenaka prjecting himself as a hard-landing specialist to sort out once-and-for-all the country's non performing loan problem. Then everything went quiet and we are still waiting to see whether the current round of inspections will

China Now No1 Exporter to Japan

In another sign of China's growing importance in world trade, figures released this week officially confirm what was aready becoming obvious, China is now the world's number one exporter to Japan. Given the size of the Chinese economy, and its rapid growth rate this picture is likely to be repeated across the developed world. China, despite its currently low per

Japanese Government Bonds at Four Year Low

The yield on the benchmark Japanese 10 year government bond returned to a four-year low of 0.795% on Monday after the central bank governor reiterated his long-standing opposition to inflation-targetting. More built-in deflation expectations to work with.
Bond sentiment remained bullish after Masaru Hayami, BoJ governor, repeated his objections against

Japanese Interest Rates Briefly Fall Below Zero

Japan's continuing economic problems took the world of economic data into new and previously uncharted territory on Friday as overnight call rates fell below zero for the first time in the country's history.The overnight call rate on Y15bn of funds traded between foreign banks fell to minus 0.01 per cent. Because of the negative rate, borrowers are

Japanese Banks Get Nervous about their Capital Adequacy Ratios

The plan announced Wednesday by Sumitomo Mitsui Financial Group to issue 150 billion yen worth of convertible preferred shares to Goldman Sachs is expected to lead to similar moves by other Japanese banks seeking to raise capital before the fiscal year ends March 31. According to Japanese sources, banking groups including Mizuho

Too Much Saving in Japan?

This piece raises a question which is very much to the point, is there too much saving in Japan? Secondly, if there is, is this structurally related to the demographics of contemporary Japan. This question is very much to the point since most of the current enthusiasm for the appointment of an 'inflation targeting' governor at the Bank of Japan results from a diagnosis

Ageing Society: Time to Recognise the Consequences

Many western economists still stubbornly fail to recognise that the move to the "ageing society" marks a sea change for our economic systems, with important deflationary consequences. This latest round of debate in Japan over the consumption tax and social security subsidies should serve as a timely reminder to all of us of what is waiting, just

Japan Government Borrowing Set to Soar

Japanese public finances sit uncomfortably somewhere between a rock and a very hard place indeed. This is brought home again this week by the disclosure that the Council on Economic and Fiscal Policy in its final draft of the revised Structural Reform and Medium-Term Economic and Fiscal Prospectus, prepared by the Cabinet Office, estimates that bond

Japan: Don't Sqeeze Me Too Tight

Japan economic specialist Richard Katz, writing in today's Financial Times, questions the advisability of turning the fiscal pressure screw in Japan. It's difficult to see how a country suffering deflation (or the imminent threat of it ) can benefit from further fiscal tightening. If in doubt ask the Germans.

It is not easy for a rich country to get itself into

Dollar Up, or Dollar Down

So which way is it this year for the greenback? A bevy of commentators (including the IMF and the OECD) regard the dollar as seriously overvalued. In principle I agree. The real problem is to identify a sound substitute. In this piece Morgan Stanley's Stephen Len argues for the dollar downside effect dominating. (Why is their global economic forum so full of talent, is

Japan About to Try to Lower the Yen

Signals coming out of Japan, difficult as they are to read at times, seem to indicate that a change in exchange rate policy may be imminent. On Mondayprime minister Junichiro Koizumi added his voice to a growing body of evidence that his government, which regards the yen's rise as reflecting external weaknesses rather than any significant improvement in its