Monday, November 12, 2012

Japan entering recession

Key elements of the Japanese economy are pointing to a strong chance that the country will record a recession for H2 of 2012.  For instance:

"Households are holding the most cash since 2005, shunning risk as they grow gloomier, Bank of Japan data indicate. Sliding private consumption contributed to an annualized 3.5 percent decline in gross domestic product in the past quarter"(1)

Falling consumption means that revenue growth from consumption tax increases would be limited and such increases would likely contribute to further declines in consumption spending.

Further, increases in cash holdings means less funds available for purchase of government debt and private investment.

"Japan risks its third textbook-definition recession since 2008, meaning two straight quarters of contraction. The median forecast in a survey of economists by Bloomberg News is for an annualized 0.4 percent contraction in the September to December period."(2)

The global economic outlook doesn't give much support to the idea that there will be near term increases in Japanese exports.

"Japan's exports fell 5.0 percent in July-September, the biggest slide since a 6.0 percent decline in April-June last year, the data showed.  Private consumption - which accounts for roughly 60 percent of the economy - fell 0.5 percent in the third quarter.  Capital expenditure tumbled 3.2 percent, the fastest pace of decline since a 5.5 percent drop in April-June 2009.  Sony plans to reduce capital spending by 29 percent in the year to March 2013 and Panasonic plans a 27 percent cut, after incurring huge losses in their TV manufacturing businesses."(3)
Japan's industrial sector doesn't seem capable of rapid reorganization to successfully adapt to the changes  in markets and industries that have been and continue to take place.

Update:  Japan’s Exports Reach Three-Year Low as Recession Looms: Economy - Bloomberg

"Shipments totaled 53.5 trillion yen ($653 billion) for January through October, down 2.3 percent from the same period in 2011...The trade deficit for 2012 so far is a record 5.3 trillion yen."

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