For the 4th time in seven quarters the Japanese economy shrank. It appears Japan may be headed for another recession. In response, Prime Minister Shinzo Abe may double down with his Abenomics policies that have clearly failed. That idea was enough to propel the Nikkei up 1,070 points.
Japanese Economy Shrinks Again
The Wall Street Journal reports Japan’s Economy Shrinks Again in Fourth Quarter.
Japan’s economy shrank again in the fourth quarter, the latest confirmation that Prime Minister Shinzo Abe’s growth program is sputtering.
The contraction, the fourth in seven quarters, comes at a crucial time for the prime minister’s economic policy program, known as “Abenomics,” and could lead to calls for further monetary and fiscal stimulus.
After Mr. Abe took office in late 2012 declaring that “Japan is back,” economic growth has been intermittent and wage increases have been negligible. In addition, the primary gauge of inflation is languishing around zero.
The main cause of the slowdown in the fourth quarter was a decline in consumer spending, according to the government. Private consumption fell 3.8% on an annualized basis. Unseasonably warm weather likely caused people to buy less winter clothing, while sluggish wage growth also kept pocketbooks closed.
Japan’s consumers have been tight fisted since a sales-tax increase in April 2014. Paychecks failed to keep pace. Including the effects of inflation, wages fell 0.9% last year.
Exports unexpectedly fell during the latest quarter, by an annualized pace of 3.4%. Slower sales of smartphones in China sapped demand for equipment in Taiwan and South Korea. Shipments of mining equipment to the U.S. also slumped as companies shelved shale-gas projects because of depressed oil prices.
Yen vs. US Dollar
The Yen is off just a tiny bit over the past few sessions, weakening from 110.98 per dollar to 113.72 to the US dollar.
The weakening Yen and prospects of another Japanese recession, coupled with the likelihood of more failed Abenmomics was enough to send the Nikkei soaring.
Nothing succeeds like repeated failure.
Mike “Mish” Shedlock
Fagui Curtain said:
USDJPY is becoming difficult to predict… Riskoff = JPY bullish, but who wants to be long JPY in the long run with a crazy BOJ, negative rates, a declining population, and public finances spiralling out of control ????
Chris H. said:
Japan’s total population peaked in 2010 and has fallen a couple million since.
But Japan’s 0-14yr/old population segment peaked in 1954 and has fallen 45% to date…45% fewer Japanese young now than over 60yrs ago!!! And the decline in the young isn’t finished and according to OECD, Japan’s population of young will be down over 60% by 2040. These are the declines which will work their way through the entire Japanese population over the next couple decades (in a nation with net emigration, to boot).
And Japan’s 15-64yr/old population has fallen 12% from peak thus far and will continue falling indefinitely. Declining #s of homebuyers, consumers, tax payers, stock market participants against surging older sellers.
The only area of population growth is among 65+, 75+, and 85+ yr/olds living far longer than their predecessors. And these folks need to sell assets and receive greater benefits from the state to maintain their retirement…selling assets to a far smaller population of young buyers absent growing income and debt/interest service already as cheap as possible. To understand why NIRP is here…contemplate that last sentence.
And of course, Japanese laborers are not seeing wage growth despite their far smaller #’s due to offshoring, technology, etc. etc.
Hard to imagine how they could “grow” under these circumstances???
Jolly Holly said:
This is the definition of insanity…
Old Guy said:
Bad news is always good news for the markets these days. All the CB’s in the world are helping to keep Japan from failing. If Japan goes down the gig is up for the bankers.
Bad is the new good. Severe contraction and falling prices in Japan. Tora,tora,tora…
Tony Bennett said:
“The weakening Yen and prospects of another Japanese recession, coupled with the likelihood of more failed Abenmomics was enough to send the Nikkei soaring.”
I’ll hold my breath waiting for the main stream media *cough* CNBC *cough* to mention that Abe took advice from Paul Krugman in 2014.
Jim Quinn said:
Deranged central bankers are blowing up the world. Only lunatics would add $70 trillion of debt to the global horde (a 50% increase) in seven years in order to fix a problem created by too much debt.
Uncle Frank said:
It’s risk back on, and it’s all about stimulus.
Stocks in Europe headed for the biggest two-day gain in more than four years, while oil advanced and China’s yuan jumped by the most since a dollar peg was scrapped in 2005, after People’s Bank of China Governor Zhou Xiaochuan expressed faith in the economy. Demand for havens such as gold and the yen declined.
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Ron J said:
” Prime Minister Shinzo Abe may double down with his Abenomics policies that have clearly failed. ”
Doubling down on failure. What a concept.
Ron J said:
“Japan’s consumers have been tight fisted since a sales-tax increase in April 2014.”
It is difficult for consumers to spend money that has been taxed away from them.
Elliott waves indicated the Nikkei was about to start a counter trend rally which could eventually reach the 18000 level before resuming the larger downtrend.
Our obsession with GDP will be our downfall. It makes inflation a political necessity. Japan has it’s problems but also has world class infrastructure, good life expectancy, and good healthcare. It’s not embroiled in every world conflict. It’s not importing people into their country merely to goose GDP like the United States or Europe. Give me a couple of those lost decades any day. Sometimes I think we are really stupid. Worse case they go bankrupt with their own currency. Big Deal – our economy is dependent on loaning people money. We will turn around and lend them more of your hard earned money soon after a bankruptcy is declared. Unlike Greece they didn’t give their sovereignty away for a couple bank loans.
If I were Abe I would ban Krugman from proceeding past any Japanese port of entry. That would be my first step to recovery.