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Saturday, October 01, 2005

Japan: David Pilling to the Rescue

Well at least there is one financial journalist who continues to talk some sense on Japan's "sustained recovery": the FT's David Pilling.

Unemployment in August fell to 4.3 per cent from 4.4 per cent after rising in the previous month, and the ratio of jobs to job-seekers showed the labour market continued to be as tight as at any time since the early 1990s.

Those positive figures were slightly undermined by a 1.3 per cent fall in household spending, suggesting that a tighter labour market will not automatically feed through to higher consumption. Private consumption makes up about 55 per cent of gross domestic product.

The national consumer price index, discounting fresh food, eased to minus-0.1 per cent in August, but the Tokyo index for September, a leading indicator, fell a sharper-than-expected 0.4 per cent.

Hiroshi Shiraishi, economist at Lehman Brothers, said: “Basically things are improving in trend terms, though [in net terms] today’s data are a little disappointing.”

He highlighted the CPI data, saying the numbers cast some doubt on the central bank’s expectations that Japan would move out of deflation as early as October or November. “The [Bank of Japan] is really upbeat, and signalling that the end of quantitative easing is getting nearer.”

Basically I agree with Pilling. The position in Japan is more complex than much of the spin would suggest. Consumer spending still remains weak, and may not be sustainable. Wishful thinking here simply won't do. Deflation persists, and it would be better to wait until there is clear evidence of sustainable inflation before saying its over. Unemployment is falling, but so is the workforce, which dropped by 100,000 in the last month. So, in fact, the unemployment rate went down while the number of those employed dropped by 50,000.

Wednesday, September 28, 2005

Japan: Andy Xie Backs The Sustained Demand Story

Oh, deary me, I do seem to be having my own private version of the Alamo on Japan right now. (I am it will be remembered forecasting that the internal demand resurgence will *not* prove sustainable). Today it is the turn of Andy Xie to join the queue in the other camp:

Japan’s economic recovery is a delayed response to its massive fiscal stimulus over the past seven years and could be a source of autonomous demand the next few quarters. It could stabilize Asia during a potential US downturn. We think Japan as a source of autonomous demand could add half a percentage point to Asia’s GDP growth rate in 2006.

Japan’s demand recovery seems to be spreading. S. Korea and Taiwan are benefiting. Japan reported strong imports from each in August and, judging from Taiwan’s export orders, will likely do so again in September. As Taiwan and S. Korea’s exports are correlated with capital goods demand, the data may indicate pick-up in Japan’s capex. By value, Taiwan and S. Korea’s exports to Japan represent 3-4% of their GDP. We think Japanese demand could add half a percentage point to either’s GDP growth rate in 2006.

Japan’s demand for Asian goods has been highly correlated with US demand for Asian goods, because Japanese demand has been derived from global demand, especially US consumption demand. If Japan is staging a recovery based on domestic demand, its demand could remain strong even as the US economy weakens.

Well, sorry to spoil the party folks but I don't agree. Still the proof of the pudding will be in the eating.