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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.

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