Thursday, June 18, 2009

Bank of Japan on the outlook: not so rosy

The Bank of Japan today released its June report of economic and financial developments. Overall, it is consistent with the consensus view that the worst has passed. The BoJ finds it encouraging that export growth is stabilizing. Although exports in nominal terms have regressed 7-8 years, the decline seems to have stalled two consecutive months.

Overall, though, the economy is in bad shape: no spending, some policy, high unemplyoment ...and hopefully, the re-emergence of export growth.

The findings in brief:
  • What is happening
  • Business fixed investment has declined substantially, reflecting the significant
    deterioration in corporate profits.
  • Private consumption has weakened and housing investment has decreased, as the employment and income situation has become increasingly severe.
  • On the other hand, exports and production have begun to turn upward, after falling substantially.
  • What is expected: "In the coming months, Japan's economy is likely to show clearer evidence of leveling out over time."
  • Domestic private demand is likely to continue weakening with corporate profits and firms' funding conditions remaining severe and a worsening employment and income situation. (RW: domestic spending will continue to decline)
  • On the other hand, exports and production are expected to continue recovering, mainly due to progress in inventory adjustments both at home and abroad. (RW: hopefully, hopefully, exports will continue to improve)
  • Domestic corporate goods prices are likely to continue decreasing gradually for the time being, as supply-demand conditions for products are likely to remain slack. (RW: since there is no domestic demand, deflation is all but given)
This is not, and I repeat not, an encouraging report. Basically (and as you can see with my commentary to the side), there is no domestic spending whatsoever - firm nor consumer - to generate growth. Japan is completely dependent on the re-emergence of trade.

Just to give you an idea of how weak the economy is (aside from the precipitous decline in GDP), the unemployment rate marked 5% in April 2009, its highest level since 2003. But worse yet, the surge, 1% over the year, is the largest annual jump since 1954 (except in March, when it likewise posted a 1% change over the year). Oh man.

Rebecca Wilder

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