Is Japan really headed for recession?

12 Responses to “Is Japan really headed for recession?”

1. Michael on July 26th, 2008 6:15 am

   Just wondering about the expression “absolutely might”. Is that a technical expression in economics? It seems somewhat self-contradictory, but economics is a “dismal science”.

   Enjoy your site.

   Michael

2. Ken Worsley on July 26th, 2008 8:37 am

   Is that a technical expression in economics?

   I’d say check an econ textbook!

3. Contrarian on July 28th, 2008 10:24 am

   Exports from Hong Kong to mainland China, Japan and the US declined for the first time in 2 years in June.

   I’m not sure how much Hong Kong typically exports to Japan, but it might be an indicator that, in addition to slowing exports, there are slowing imports (weaker consumer?).

   I think the American consumer is still the centerpiece in the global economy and they are still in a worsening period. Japan is one of the most important exporters in the world and it will certainly face both the direct effects of a weak America and the ancillary effects as American weakness ripples through Japan’s other important trade partners.

   In this day and age, I’m not sure how to quantify a recession. In America, they have a subjective NBER definition. Other places still use the classical 2-quarters GDP definition. Given my trust of government statistics, I’m not prepared to trust GDP numbers. I am under the impression that the GDP deflator has been lower than CPI in many countries (including Japan). I’m not sure if Japan has the same problems with CPI that America has, but if so, then real GDP growth would tend to be largely overstated.

   Also something that I haven’t taken the time to think about: Is negative GDP growth really a terrible thing in a country with a declining population if the contraction is slower than the decline in population (i.e., if GDP per capita is still trending positive)?

4. Edward Hugh on July 29th, 2008 1:45 pm

   Hi Ken,

   Well I certainly think that the inflation problem is now having a significant impact on the rate of expansion in key emerging markets. I think we are all agreed that growth in Japanese exports to the US is not likely to be strong in the second half of 2008.

   Europe is now slowing rapidly. The eurozone may well have contracted in Q2, and given that Spain’s economy has serious problems, and that the German one has weakened very rapidly indeed, two consecutive quarters of negative growth in the eurozone cannot be ruled out at this stage.

   So the emerging markets were the only thing which was holding the expansion in Japanese exports up. Now with generalised monetary tightening these cannot give the much needed momentum, and probably the last leg to fall here is going to be Russia.

   The underlying point is that Japan is an export dependent economy (which I argue is now - whatever the explanations in the past - a population-ageing related phenomenon). So each time exports fold, the whole show comes down with them. I expect the export situation to deteriorate in Q3, - I can’t see where the growth could come from - so draw your own conclusions I think.

   Best wishes,

   Edward

5. Contrarian on July 30th, 2008 7:47 pm

   “In Japan Industrial Production fell last month as the lingering effects of the credit crunch curbed overseas shipments. Factory output declined 2.0 percent from May and the survey suggests that output will decline in July and August.”

   John Jansen, acrossthecurve

6. Ken Worsley on July 31st, 2008 12:43 am

   Contrarian, that’s definitely a bad sign, amidst falling exports and three months with rising unemployment.

   Here’s what the Nikkei hinted at in terms of ‘decoupling’:

   The current economic boom, which started in 2002 and is the longest on record, has been driven by exports to China and other emerging countries. But the trade data for June shows that overall exports fell short of the previous year’s level for the first time in 55 months, as shipments to the U.S. and Europe posted double-digit declines while those to Asia slowed considerably.

   http://www.nni.nikkei.co.jp/AC/TNKS/Search/Nni20080730DA0J7302.htm

7. Jeremy on July 31st, 2008 4:29 pm

   the technical definition for a recession is really almost irrelevant in today’s economic world. it is much more complicated that 2 quarters of contraction. some sectors will actually improve while others will get worse .the average japanese person with falling or stagnant income will obviously continue to hurt if inflation keeps rising since he’ll have less money in his pocket. this will ripple through the economy without a doubt. with japan’s weak policies, for instance, 2% of land that is able to grow food sitting idly because the children who inherited it cannot sell (due to shit policies). i guess what i’m saying is japan (and the rest of the world) are not efficient with food and fuel (although japan’s dependence on oil has actually decreased about a million barrels a day since the 70’s oil shock) . the current crisis may be good for the world and result in more effeciencies. however, the japanese economy is shit and has to ride the coat tails of China. like that rant with 50 different points?

8. Ken Worsley on July 31st, 2008 4:34 pm

   Was that 50 points J? I’m still not fully buying the ‘coat tails of China’ thing. China’s important, but falling exports to US/Euro zone are going to hurt much worse. It’s a clearer indicator that things are going to hurt in China as well.

9. Jeremy on July 31st, 2008 7:25 pm

   yeah, i mean china is their only ticket now, still china will sustain japan in the years to come, who builds the best trains in the world, bridges, etc. they will rely on japanese companies and experts to build some of their infrastructure.
   japan has a history of this economically… who were HUGE beneficiaries of the Korean and Vietnam wars?

   also, don’t forget that japanese numbers are always scewed because an estimated 30% of imports are actually japanese companies set up in nearby countries and “exporting” their goods to Japan. of course this is due to cheaper labor, lower taxes,etc. but if you don’t count these as “imports” then the country does less importing than the numbers state. i think it also serves well politically since they can say they are importing more goods than actual. since the world pressures them to import more and open their markets. they do, to themselves!

10. Contrarian on July 31st, 2008 8:00 pm

    Just venting here:

    Did you notice that columnist in America is an expert on 1990s Japan? I keep hearing phrases like “Japan-style recession,” “lost decade,” etc. Columnists are quick, these days, the suggest that “America is making the same mistakes Japan made in the 1990s.”

    Here’s a good example: http://bigpicture.typepad.com/comments/2008/07/fasb-ok-for-usa.html

    Ritholtz, who gets a lot of face time on the financial mainstream media, keeps claiming that Japan’s problems of the 1990s were caused by banks not taking write-downs quickly enough. That’s news to me. I thought it was a combination of a lot of things, including over-investment, over-capacity, and foolish government policies. I never put the blame solely on banks taking write-downs too slowly.

    Every time I see one of these charlatons, my blood pressure…ugh

11. Ken Worsley on July 31st, 2008 8:51 pm

    Contrarian,

    I never, ever, ever hear US columnists talk about Japanese local neighborhood-based loan organizations and their role in the property asset bubble. Likewise, the role of organized crime and market manipulation is almost never discussed. The full complexity of the situation is way beyond the scope of a newspaper article, and requires one to have first-hand knowledge in the country at the time. Same would go for the current situation in the US.

    I’ve vented on these types of columns here before, but what’s the point? They’re going to keep getting published because they’re easy and they write themselves. Deadlines speak louder than words.

12. CeeJay on August 2nd, 2008 2:10 pm

    In this day and age, I’m not sure how to quantify a recession. In America, they have a subjective NBER definition. Other places still use the classical 2-quarters GDP definition. Given my trust of government statistics, I’m not prepared to trust GDP numbers. I am under the impression that the GDP deflator has been lower than CPI in many countries (including Japan). I’m not sure if Japan has the same problems with CPI that America has, but if so, then real GDP growth would tend to be largely overstated.

    Yup - and that’s why you need to follow shadow stats. What’s put out there hardly seems in line with reality. Flawed methodologies produce misleading numbers.

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