The headline says “Japan nears fifth recession in 15 years”. That’s quite an economic record for a former powerhouse.
The most infuriating part of the commentary, though, is this statement from an “economist”,
“The question is how long and deep this downturn will be and how policy makers will react,” said Masamichi Adachi, an economist at JPMorgan.
It’s abundantly clear what Mr. Adachi is indicating: how much more “stimulus” from the Bank of Japan can we expect in the future. For the record, the BoJ just embarked on its ninth (or tenth, depending on how you separate iterations) episode of QE. If Mr. Adachi was instead indicating that perhaps the BoJ might finally see some correlation between nine instances of QE and five instances of recession all compressed within a short fifteen year period of economic stagnation and dysfunction, we could finally become optimistic that just maybe the powers that be in the monetary world have finally seen the light, and seen it empirically in their own math-obsessed methods. But, alas, central banks only go in one direction, and so does their respective economies. At least we can all learn from Japan’s experience and avoid their fate, right?
On November 12th, 2012,
posted in: Federal Reserve/Monetary Policy by Jeffrey P. Snider
Joseph Calhoun
November 13, 2012 at 8:36 amOkay, so everyone agrees that Japanese economic policy has sucked over the last couple of decades, right? And no matter who you talk to, monetary policy has been an absolute disaster right? And everyone agrees that Japan has suffered from deflation, right?
So, why is the Japanese consumer price index at basically the same level today as it was in 1992. The index during that time has never fallen below 99 and the high was around 104 in the late 90s. It seems to me that any central bank on the planet with a mandate for price stability would be proud of that record. In gold, the Yen was remarkably stable throughout the 90s, trading at, again, a remarkably stable price of around 40,000 Yen. Starting in the early 00s the price started to rise and is now around 135,000 Yen. Isn’t that inflation?
Oh and also by the way, Japan’s GDP per capita rose all throughout the so called lost decade of the 90s, although it has flattened out a bit recently. If you adjust for the size of the workforce, the record is even more impressive.
So, what is really going on in Japan? Is monetary policy deflationary or inflationary? Was the lost two decades really that lost?
Jeff Snider
November 13, 2012 at 1:26 pmIf you define success very narrowly, like inflation or just consumer inflation, Japan has been wonderful (plugging our webinar later this afternoon). I don’t think GDP per capita moving in the right direction should be the measure of success either, it should be whether or not that movement is creating better living standards and actual economic growth, as opposed to nominal economic growth. I don’t think there is any doubt that the Japanese economy has failed on that account, and has been failing for twenty-four years.
The Nikkei index peaked in 1989 at around 39,000. Today it is 8,600. That is still 20% below where it was in 1984! That tells me that the method of creating “wealth” and circulating money and activity in Japan has not been re-adjusted to a new normal of productivity and growth. The move from 10,000 in 1984 to 39,000 in 1989 was entirely driven by monetary pre-destruction, based largely on the “collateral” that Japan, Inc, would dominate forever (straight line extrapolation is a feature of modern economics). The “prosperity” of the 1980′s, and even the 1970′s, for Japan was entirely driven by Japanese corporations increasing their share of the global trade economy. Absent that trade growth, Japan has no engine for continuing prosperity, so everything has stagnated (at best). That the Japanese economy has survived and not totally collapsed is not a measure of success, nor should it be surprising. Instead it is a testament to economic stasis and sclerosis that is due to monetary intervention not allowing market forces to push the Japanese economy to change its growth orientation. After the collapse in the early 1990′s, there should have been a market-driven effort to change the marginal growth engine to something else (what else? that’s what markets are for, to determine the optimal course for actually delivering increasing living standards rather than just being content running in place).