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Monday, December 25, 2006

Doubts Continue About Japanese Consumption

The Japanese Cabinet Office have just released another report on the state of the Japanese economy. Unsurprisingly they one more time draw attention to the lacklustre state of Japanese domestic consumption:

the report, which looks at a variety of economic factors besides gross domestic product, warned of weakness in consumer spending, saying sluggish growth in wages was keeping spending flat.

Domestic demand, which accounts for more than half the economy, undercut growth in the July-September quarter, forcing the government to downgrade its economic outlook earlier this month.

The latest report echoes concerns that although Japan has emerged from a decade-long economic stagnation — with robust exports contributing to record profits at Japanese companies — those profits have not driven up wages and spending.

The Japanese economy's recent growth is also less stellar than the double-digit growth it experienced from the late 1960s. The economy grew at an annualized pace of 0.8 percent in the third quarter.

Prime Minister Shinzo Abe later told reporters that he would work to realize economic growth that "can be felt by the general public."

The BoJ governor Toshihiko Fukui was unusually downbeat:

"We can keep an accommodative monetary environment led by very low interest rates for some time," Fukui told business leaders at a year-end meeting of the Japan Business Federation, also known as the Nippon Keidanren.

"We will tighten monetary policy if economic activity and prices develop in line with our projections," he said.

My feeling is that they are worried, not rattled, but worried, and they have reason to be. If cLuas and I are right here, and domestic demand isn't going to recover as anticipated, there are important policy changes to be made, and if they are to be effective these need to be made sooner rather than later.