The Japan Government Reduces Its Economic Forecast

In many ways this is significant. The Japanese government has just reduced its economic forecast for the first time since December 2004. So it seems that now all the signs are there that the longest economic expansion since the great recession began is now begining to come to an end. Foremost among the weak points is, of cousre, domestic consumption. Rather than repeating myself for the umpteemth time here, I would simply direct you to yesterday's post by Claus Vistesen, where the issues involved are made extremely clear.


Japan's government lowered its evaluation of the economy for the first time in almost two years, after sluggish wage growth prompted a slump in consumer spending.

``The economy is recovering, despite some weakness in consumption,'' the Cabinet Office said in its report for November in Tokyo today. ``Private consumption is almost flat,'' it added, cutting the assessment for the first time since December 2004.

The last time the government lowered its assessment was in December 2004, as stalling global demand prompted a glut in corporate inventories and a slump in production. The world's second-largest economy almost slipped into a recession when slower export growth caused it to contract in the fourth quarter.

Household spending, which has declined every month this year, plunged 6 percent in September, the biggest drop since 2001. Wages were unchanged in the same month, after rising only about 8,000 yen ($68) since January.


Although it lowered the assessment, the government maintained its view that the economy is ``recovering,'' unofficially putting the current expansion in its 58th month, the longest since 1945.

``As far as the monthly economic report is concerned, the economy of Izanagi has been surpassed,'' Ota said, referring to the so-called Izanagi boom that ended in 1970.

During the Izanagi boom, a 57-month period named after a Japanese god, gross domestic product almost doubled, helping Japan emerge as a major economic power. The expansion, sandwiched between the 1964 Tokyo Olympics and the 1970 Osaka world expo, was so named because the economic miracle was compared in significance with Izanagi's creation of the Japanese islands.

Japan's economy has grown at an average 2.5 percent in the current recovery, about a fifth of the average 11.5 percent seen during the Izanagi period, according to Dai-Ichi Life Research Institute, a Japanese think tank.


The biggest difference between Izanagi and the current recovery is that deflation plagued most of the latter, meaning growth relied on exporters as consumers, discouraged by job and wage cuts, spent less. Unemployment surged to a record 5.5 percent during the current recovery, more than four times the average rate between 1965 and 1970, government data show.

``Deflation crippled non-manufacturers, who employ about 80 percent of the workforce, which has made it hard for most citizens to feel the recovery,'' said Hideo Kumano, a senior economist at Dai-Ichi Life Research Institute and a former central bank official. ``The recovery may be the longest since the war, but it certainly isn't the largest.''