Japans Down but Not Out!

Despite the Asian market showing promising comebacks, Japan’s Q4 report fell below economist expectations. Disappointing growth figures from Japan’s report showed that GDP only rose 1% as opposed to its anticipated 2.8%. For a country in need of fiscal strengthening and economic growth after years of deflation, this was not the news some hoped for.

Though despite some optimism from economists on Japan’s situation, an increase in the country’s sales tax this coming April from 5% to 8% will further hurt the numbers by contracting spending. So why is Japan increasing their sales tax? They hope that this will cut the nations debt down to size, a priority that the administration put ahead of economic growth. To counteract short run price contraction, Prime Minsiter Shinzo Abe promises more economic stimulus for citizens and businesses. Even with his adminstration’s efforts, economic growth isn’t looking as impressive for a country that has historically been growing very quickly since the 1960s.

 “We need to understand that my administration’s top priority of putting an end to 15 years of deflation is no easy task,” Mr. Abe said earlier on Tuesday. “Furthermore, it’s important to strike a balance between economic recovery and fiscal soundness.” [WSJ]

 “This weak export performance gives us a sense of risk that the Japanese economy may significantly stall after April,” Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, told Bloomberg Television. “Prime Minister Abe really needs to be quick in showing to the market that he can deliver reform.” [Bloomberg]

Japan has low unemployment and is the 3rd largest country in terms of nominal GDP. It’s a leading nation in technological research and has had its economy long driven by exports. Though exports did edge up this past quarter, they were not enough to make up for previous losses. Companies like Nintendo Co., which has not been performing very well with its latest generation console, Wii U. The system has struggled to sell as much as its predecessors hurting exports a bit I presume.

 In 2011, the Tohoku earthquake/tsunami and brought Japan to its knees in trouble. Mass casualties and economic crippling it has been referred to as the toughest, most difficult crisis in Japan since WWII. This was followed by the Fukushima Daiichi nuclear disaster which worried its citizens about their health and safety and is still in the process of reaching full recovery to this day.

I think Japan deserves to make a turn around here. They have faced devastating hurdles such as when the country was hit by tragedy back in 2011. As the largest patent filing, a lot of technological innovation namely with robotics/automobiles/etc come out of Japan. I would look to see Japanese ingenuity and confidence thrive and continue.

2 thoughts on “Japans Down but Not Out!

  1. bdinger

    This is the type of situation I was getting at in one of my posts earlier in the term– while Japan’s stimulus is much larger than ours in terms of the QE/GDP ratio they just have not gotten the general public to break the cultural mind set of “prices will fall tomorrow”– EVEN IF THEY WONT. This is partially why I think that a negative interest rate would help in that it psychologically changes the game in that you actually lose money by letting it sit there.

  2. wyna

    Good post. One of the conditions for the ‘Abenomics’ and its easy money / aggressive government spending was that Japan will again raise income tax in 2014. Paul Krugman expressed his concern that this tax hike will discourage spending and if Japan did not recover enough from their first two years of the program, there is a risk of further disinflation. I think it is a little bit early to say anything about their progress,. but Japan should keep on their toes on look out for inflation rates.

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