Japan’s economy falls back into recession again

November 16, 2015

We have been trying to cover Japan a little more recently. Not because there is a unique story of growth in the country but because we feel that it is important to keep an eye on all the developed economies around the world.

Here is an update on the Japanese economy that has just released data pointing to a continued slowdown in its economy Now officially in a recession (again!) Japan will have to keep the money printing taps on. There is not one bright light around the world that gives me any reason to feel that economic growth will make a comeback. How about you?

Click here to visit the original posting page over at the BBC website.

Japan’s economy has fallen into recession again after it shrank 0.8% on an annualised basis in the third quarter.

The preliminary data means the world’s third-largest economy has contracted for a second consecutive quarter, marking a technical recession.

Growth was expected to decline after it fell a revised 0.7% in the second quarter on weak domestic demand.

Japan has been in recession four times since the global financial crisis.

On a quarterly basis, growth fell 0.2% in the third quarter from the previous one, weaker than forecasts of a 0.1% decline.

The seasonally adjusted figure was also much lower than expectations of a 0.2% drop.

Economists said the weak data will put more pressure on the government and central bank to continue to stimulate the economy.

However, Marcel Thieliant, economist at research firm Capital Economics, said policymakers have showed “considerable reluctance” to respond to weaker growth with more stimulus as inflation accelerates, and he does not expect more easing at the central’s meeting this week.

“The upshot is that the Bank’s preferred inflation measure, which excludes prices of fresh food and energy, should start to moderate soon,” he said in a note.

“We therefore remain convinced that more stimulus will eventually be needed, and now believe that the January meeting is the most likely venue for its announcement.”

Business spending falls

Japanese companies continue to be wary of using their record profits to raise wages and invest in the economy – a major challenge for Prime Minister’s Shinzo Abe’s “Abenomics” policies.

Business spending fell 1.3%, against forecasts of a 0.4% decrease. It also marked the second quarter in a row of declines.

But, private consumption, which accounts for 60% of the economy rose 0.5% from the previous quarter.

Consumer spending has picked up from the hit it took last year from an increase in sales tax in April, which contributed to the recession in 2014.

Despite the declining growth, the government is positive that a recovery is underway.

“While there are risks such as overseas developments, we expect the economy to head toward a moderate recovery thanks to the effect of various (stimulus) steps taken so far,” economics minister Akira Amari said in a statement.

But in reaction to the growth figures, the benchmark Nikkei 225 index was down 1.1% to 19,372.98 points in early trade in Tokyo.

Here is another post from The Guardian that provides a little more information – click here to visit the posting page.

Japan’s recovery is being held back by a shortage of skilled labour, a leading minister has claimed, after the world’s third-largest economy entered its fourth technical recession in five years.

Economics minister Akira Amari said a lack of workers available for public works projects worth billions of pounds restricted the government’s ability to bolster the economy.

Amari urged Japanese firms to use their record cash holdings to raise wages and increase capital spending to generate sustainable growth led by the private sector, instead of relying on government to always take the lead. He added that Tokyo was not considering a fresh stimulus.

The plea for big business to support the recovery came as official data on Monday showed Japan’s economy shrank by an annualised 0.8% in July to September after a deeper than previously estimated 0.7% contraction in the previous three months, providing the two consecutive quarters of declines needed to mark a recession.

Analysts said labour shortages were a significant feature of an ageing population in a country that had put severe restrictions on immigration.

But the government maintained its cautiously upbeat outlook, saying that despite a downturn in national income during the summer and autumn, an improved outlook for jobs and wages would mean a return to growth later in the year.

“While there are risks such as overseas developments, we expect the economy to head toward a moderate recovery thanks to the effect of the various [stimulus] steps taken so far,” Amari said.

He blamed a big reduction in stock levels for the dip in the third quarter and excluding this effect, said the economy expanded by an annualised 1.4%.

Structural reform to support business investment is the third arrow in the country’s recovery plan, dubbed Abenomics after the prime minister, Shinzō Abe.

Izumi Devalier, an economist at HSBC, was also upbeat about the prospects for the economy, saying there were “positive trends that reflect the economy’s continued progress in exiting deflation”.

“Private consumption rebounded strongly on the back of improved real labour income. Meanwhile, nominal GDP continues to rise on the back of firm domestic price pressures and a better terms of trade,” she added. “The bad news is that corporates are not yet convinced that the reflationary trend is here to stay, keeping capital expenditure weak. But this issue cannot be addressed through short-term stimulus alone.”

Japan consumption figures
Japan: private domestic consumption rebounded in the third quarter of 2015. Illustration: CEIC, HSBC.

Japan has been stuck in a deflationary economic slump since a property and banking crash in the early 1990s. Under Abe’s reforms, the government has increased its spending to regularly run a budget deficit of about 10%. This has been matched by aggressive action by the Bank of Japan to drive down borrowing costs to business and households with extra quantitative easing. But structural reforms have proved more difficult to implement and business investment has lagged.

The Reuters Tankan sentiment index for manufacturers fell in November to its lowest reading since April 2013. The service sector index fell in October to its lowest since March, dragged down by wholesalers and retailers.

Hiroshi Shiraishi, senior economist at BNP Paribas Securities: “Abenomics’ first two arrows of monetary and fiscal stimulus were meant to buy time, but Japan failed to make progress with painful reforms needed to boost its growth potential. Without reform [the ‘third arrow’], the economy’s growth potential remains low, making it vulnerable to shocks and to suffering recessions more often.”

Private consumption, which accounts for about 60% of Japan’s GDP, rose 0.5% from the previous quarter. But capital expenditure fell 1.3%, more than the 0.4% decrease expected by economists.

    Nov 16, 2015 16:14 PM

    Japans economy falls into recession again !!!!!! What I was not aware they came out of the last one.

      Nov 16, 2015 16:19 PM

      Haha that comment made me laugh Tony!

        Nov 16, 2015 16:24 PM

        CORY..Just goes to prove , I’m good for something on this site….haha

    Nov 16, 2015 16:13 PM

    I skimmed this article, saw some facts, and shake my head because it’s mostly bs. People are looking at he wrong thing.

    The *real* problem here is demographics, and can be seen w/simple math. Something like over half the population here is already retired – they retired at 50 or 55, and live w/out working, on public pensions, until they die, at age 100, some 50 yrs later. So they work 30 yrs, then live on the public for 70. And in their later years they need more healthcare. Plus the population is declining. People aren’t reproducing anymore, and the young resent having to pay for the old now, when they know that no one will be there to help them when it’s their turn. Suicide is higher in Japan than anywhere else. Every few weeks here when I’m on the Chuo train, it stops because someone up ahead jumped in front of another train. Especially true around year end, and in early spring.

    These numbers aren’t precise, but overall the picture is accurate.

    Japan is in a black hole, and the only way up is down, sorry to say.

      Nov 16, 2015 16:14 PM

      typo’s … sorry…

      “People are looking at the wrong thing.”

      “So they work 30 yrs, and then live on the public for 50 (not 70)”.

      Nov 16, 2015 16:38 PM

      Hard stats on country populations are here:

      Focusing on pop (rounded) and folks who are 60+, …

      China pop is 1.4B, and only 14% are 60+
      India pop is 1.3B, and 9% 60+
      US pop is 300K, and 20% 60+ … and we see this
      Jpn pop is 130K, and 33% 60+ (not 50% a I thought, but 50% higher than the US)

      So my facts were off, but my point is correct. Remember too that Japanese routinely live well above 90, even 100 is more common now. Compare to the US, at I think it’s 82 or so. 30 yrs ago folks started dying at like 50, so while it’s higher at 82, it’s still far from Japan in my view.

        Nov 16, 2015 16:53 PM

        Seriously, thanks Bill.

      Nov 16, 2015 16:55 PM

      I had no idea it was that bad, Bill.

        Nov 16, 2015 16:38 PM

        Yea, maybe I’ve been here too long. I’m not a pessamist, but I am a realist. Everyone around here is old and dying off. Even one of the recent prime minisers, Aso, was on record saying that he’d wish that old folks would just “hurry up and die.” Nice.

          Nov 17, 2015 17:46 AM

          And on top of the demographics, or maybe as a result, the public debt is huge as well, no? My understanding is that a tiny upward tick in interest rates and all gov’t revenue will go to debt service. What say you, Bill?

          Kyle Bass has talked about Japan’s problems in some detail, and he’s one smart guy. I’m sure he could be off in his timing, but he seems unlikely to be wrong in the ultimate outcome: