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Fukui, Muto sound glum on economy; BOJ to revise GDP projections downward?

January 11, 2008
By Ken Worsley


Speaking at a meeting of business leaders in Sapporo on Thursday, Bank of Japan Deputy Governor Toshiro Muto opened his remarks with the following comment on the state of Japan’s economy:

The pace of growth in Japan’s economy is currently slowing, mainly due to the drop in housing investment. The economy, for the time being, is expected to continue slowing, but is likely to resume moderate expansion thereafter.

We think the first sentence is an obvious oversimplification of what’s causing the current slowdown of the Japanese economy, although the drop in new construction is certainly significant, and something that will eventually bounce back.

Towards the end of his talk, Muto took a slightly broader stance, touching on a few factors that have been putting negative pressure on the economy:

In sum, negative factors such as (1) the surge in materials prices, (2) the significant decline in housing investment, and (3) increased uncertainty regarding the course of the global economy are causing a deceleration in the growth of Japan’s economy, which has been moderate to begin with.

Interestingly, Muto made no mention of more domestically-focused issues such as wages and worries over the state of Japan’s social insurance and pension systems. One hardly thinks that shoppers, who drive the domestic demand accounting for about 55% of Japan’s GDP, are really thinking about the course of the global economy when they make purchasing decisions.

Fukui shares view, for the most part

Today, BOJ Governor Toshihiko Fukui told reporters, “The Japanese economy is slowing due to the drop in housing investment and will likely keep slowing for the time being…Still, the economic recovery cycle is still intact and the economy is expanding as a trend.”

Fukui’s comments lent a sense of gravity to what Muto said yesterday. Speculation is now rife that the BOJ will cut its projections for GDP growth in the current fiscal year to the 1-1.5% range. Last October, the BOJ had announced a projected 1.8% growth scenario for FY2007.

We’ll have to wait a few weeks yet to see if the BOJ does indeed decide to cut its projections, but they should be doing so. It’s quite difficult to imagine GDP growing an an annualized 1.8% in the current fiscal year. Blaming the drop in housing starts and worries over the global economy way be convenient, but we’re hoping the BOJ - and other government folks - won’t stop there and will dig into the more everyday, structural challenges that remain obstacles to Japan’s economic growth.

It bears mentioning that Economic and Fiscal Policy Minister Hiroko Ota told reporters today, “At this moment, I don’t think the economy is slowing down…no indicators show a clear sign of slowing, and the economy is recovering.”

Hopefully some government spokespeople will at least start being honest.

At any rate, Muto’s remarks are important because his name has often come up as the most likely successor to Fukui as the Bank of Japan Governor. Of course, there could be some political hurdles to this appointment and confirmation, as we commented on a few months back.

Filed Under Bank of Japan, Economics 

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Comments

6 Responses to “Fukui, Muto sound glum on economy; BOJ to revise GDP projections downward?”

  1. J on January 13th, 2008 4:36 pm

    Keep trying to talk the yen down, it won’t work.

  2. BillyBuck on January 13th, 2008 8:50 pm

    oh…. why not. For the last 7 years it worked. So why not now or in the future?
    Japan is the bigest exporter of wealth around the globe thrue their weak yen policy. All their money and savings are exported to us in US and EU.
    If the japanese society want to export their products allmost for free we should be thankful. It is like having slaves without seeing them, feeding them or even have to beat them hard. They are doing it by themselves. Yes, it is a strange world. Japan is somthing so totaly different than every other country in the world - you will never figure it out even if you tried.

    A big Touota is a much beter car than a similary big Mercedes. But the price is one third to half. How is that possible?

    Answer: weak yen. Thanks a lot Japan!

  3. WG on January 14th, 2008 4:54 am

    The yen can only be headed down. It is against everything but the dollar right now - by ‘everything’ I mean versus the pound and Euro. The ‘cheap yen’ strategy has only been hurt by the dollar getting hit, which was overdue anyway.

    If they’re serious about cheapening the yen against the dollar, they’re going to have to intervene again.

    “A big Touota is a much beter car than a similary big Mercedes”

    I disagree. They are similar, and I would go for the Toyota on cost, but the Mercedes carries more brand value and they do ride better.

  4. BillyBuck on January 14th, 2008 5:42 am

    I dissagree about that.
    I have a Mercedes ML now, and about everything is broken or soon to be.
    Also a SL was in my garage earlyer. It was nice to look at but it was better in the garage than on the road.
    The yen and the dollar have a race to the botom… and it is a looooong way down for the both of them I think…
    I do not see yen as money anymore. It is more like a competitive index..
    And in that way - it strenghtens :)

  5. WG on January 16th, 2008 11:18 pm

    Well, we could disagree about rides for ages. I’ll give you this: I’ll take a Lexus any freaking day over a Mercedes.

  6. Alex Sinclair on January 28th, 2008 9:56 am

    The yen has depreciated against most currencies for a long period of time while wages in Japan have actually declined during this same period. Japan is capable of cutting prices to mainatain volume, especially to Europe, They have also gained advantage against the Paper Tigers, China and India as their currencies have risen. The yen is undervalued and the carry trade will continue to unwind as the markets are just beginning to understand the seriousness of what was a U.S. housing problem that will not improve for a couple of years. A recession will add foreclosures to the 2 million already expected. Remember Japan spent $2 trillion US dollars on stimulus with no affect in a much smaller economy. $150 billion will not change anything except the size of the deficit.
    The U.S. is in for a long period of recession or sub par growth. Japan’s consumers have not been in a spending and borrowing spree. Japan has purged its excesses while the U.S. is just getting started. We will see the yen at 90 in six months.

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