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Friday, September 16, 2005

This Is Probably Nearer The Truth

Despite the fact that the IMF is rumoured today to be holding firm on the probability of a sustained Japan recovery, Edward is holding firm on his scepticism. Backing for this comes today from a Bank of Japan survey on public expectations made available in English yesterday.

The survet showed that 73 per cent of those questioned thought the economy would be unchanged in a year's time, and that 58 per expected incomes to be unchanged a year from now. More to the point, despite the fact that consumer spending has risen recently, a majority of those surveyed said they had cut spending because they were worried about a future cut in their incomes, a reduction in social security or pension payments, and tax increases. Just 1.3 per cent had plans to increase spending in the next 12 months.This is the harsh underlying reality behind Japan's comeback: the common knowledge that even the most tepid recovery will simply trigger a wave of measures to address the massive government debt issues which have accumulated over the last 15 years. So with the income flow from the state threatened, individuals of all ages have no alternative but to save more. This is why I don't see the 'self sustaining recovery' argument that we were getting from Iwata yesterday.

One of the keys to hauling Japan out of the mud are property prices, the report tells us, however, 92 per cent said they had no plans to purchase a house for the first time or sell their house and buy another. One 'expert'- Paul Sheard, economist at Lehman Brothers - quoted by the FT, had this to say:

"This is the result of the trauma of 10 to 15 years of deflation and falling assets prices. There has been a general loss of confidence in Japan, a loss of the feel good factor and an insecurity about the future...For all the talk about things getting better, Japan is not out of deflation and the Bank of Japan is not out of its quantitative easing policy. If there is a downturn, the BOJ has nowhere to go,"

I entirely agree. OK, now the money is on the table, lets see what happens.

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