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Tuesday, January 30, 2007

Japan Consumption Falls as Output Accelerates

Here's the latest bit of news from Japan:

Japan's factory production rose to a record, while household spending fell, underscoring the central bank's concern that growth has bypassed consumers and left the economy dependent on exports to expand.

Industrial production climbed a seasonally adjusted 0.7 percent in December, the trade ministry said in Tokyo today. Household spending declined for a 12th month, falling 1.9 percent from a year earlier, the statistics bureau said.

Without a recovery in consumer spending, Bank of Japan Governor Toshihiko Fukui may delay raising the benchmark overnight lending rate from 0.25 percent, the lowest among major economies. Wages grew 0.1 percent in the third quarter of 2006, when average corporate profits surged 15.5 percent.

This a really only serves to confirm the picture Claus has been arguing. I suppose it would be rather strong language to state that the entire consensus view was almost "out to lunch" on what was actually happening in the real world these days. Something important is happening in Japan, the sign of things to come (and lets just wait till we get round to some real data for Germany for January 2007), while at the other end of the scale people seem to totally underestimate India's growth potential, and the issue is one and the same in each case: demographics. On the one hand what we are seeing is a demographic penalty, and on the other a demographic dividend. Of course, in order to appreciate that this is the case you need to at least consider the possibility - contrary to classic textbook wisdom - that demography may be an important part of the macro growth picture.


Scott said...

I agree with your commentary on the trade ministry report 100%. I think it is clear, or one might even say a blinding flash of the obvious, that Japan's economy is dependent on exports to provide any kind of GDP growth. Although one wonders, given that the Japanese have been said to have been saving a large proportion of their wages compared to US consumers, where and when those piled up savings are going to be spent?

Edward Hugh said...

"where and when those piled up savings are going to be spent?"

Well at the moment a big chunk of them seem to be going over to buy US treasuries, hence the very low yen.

In particular see the point made by Stephen Jen about Japanese retail investors in this post.

Scott said...

I think that it is highly likely that the demographic group that Jen mentions is in fact allocating more of their savings overseas, and in fact to US treasuries as you suggest. I think that what investment banks would call Japanese "retail investors" recognize that outside of Japan's headline exporting companies many Japanese companies are poorly managed compared to businesses in other countries, and that they recognize that much of the public works type spending that has been done by the Japanese government throughout the 1990's to "prime the pump" of their economy has essentially been money hosed down the drain. Plus, the simple and obvious observation that one can get better returns on US government bonds than JGB's is a motivator as well.