Monday, January 26, 2009

Conditions in Japan

Japan's Grim And Bear It 2009 Outlook

Perhaps they could sell some of their holdings of Treasuries? Setser today details how private and government investors have been flocking to Treasuries...the BoJ could cash in without causing a shock to the market, possibly. Of course, I presume the net debt figures in the linked post are net of those Treasury holdings, so it is a facetious suggestion.

Another possibility would be to follow Bernanke's proposition and "helicopter drop" cash in some fashion directly to consumers. That would possibly stimulate domestic consumption and conceivably weaken the yen versus the dollar; both desirable for Japan's financial leadership.

I spoke with Japanese coworkers about why Japanese don't loosen their pocketbooks given their high savings rates, and the answer was the force of habit and memory of hard times kept people's wallets in their pockets.

Economic fallout

Excerpted from Setser:

-"Moving from a budget that balances at $70 oil to a budget based on $41 a barrel isn’t fun even if Russia uses its fiscal reserve to adjust gradually. Eastern European economies that relied on large capital inflows rather than high commodity prices to support their growth aren’t doing any better."

-" $40 a barrel oil requires the Gulf to dip into its foreign assets, but most countries still have plenty of spare cash (though not as much as before). Still, all of the Gulf is slowing. And the most exuberant bits of the Gulf – Dubai in particular – are in real trouble."

-"China is really slowing. Stephen Green of Standard Chartered has constructed an indicator of Chinese economic activity that isn’t based on the government’s reported GDP data. It suggests a far bigger fall in Chinese output than in 1998."

-"The fall in Korea’s output in the fourth quarter was quite large. Even larger than the fall in output in UK, or Japan."

-"Singapore and Taiwan are also contracting sharply. Singapore’s economy contracted an annualized rate of 12.5% in q4, and the huge fall in Taiwan’s exports cannot be good for its economic performance. Japan isn’t an emerging economy, but it too saw a sharp fall in output. It isn’t a stretch to think that Asian output could fall more in 2009 than in the 1997-98 Asian crisis."

Mercantilism works, until the consuming country runs out of the ability or desire to keep consuming. Every country listed above targeted the US as their primary export market.