If you want to see what America’s economy might look like in several years time if the Fed’s approaching spending surge can’t break the hold low inflation and high unemployment has, take a look at how the Japanese economy is travelling.
In short it’s floundering as the bounce out of recession dies, deflation maintains its grip, retail sales run well under trend, industrial production keeps falling, exports weaken and the high yen hurts some exporters.
Last week produced the usual end of month update of data from Japan.
In short it was gloomy, a situation ignored by the Australian media, and yet it is still our second biggest export market.
The slump in industrial production in September was the big surprise, as it was the fourth monthly fall in a row and the largest so far.
Production fell 1.9% from the previous month, as the stronger yen hit sales in export markets and failed to boost domestic demand for locally made goods.
The fall was three times the market forecast of a fall of 0.6%.
Trade Ministry said production of electronics and particularly for cars was hardest hit.
It predicted that total output would fall a further 3.6% in October
But corporate profits remain surprisingly solid, as last week’s flood of reports attest.
Four major Japanese exporters reported surprisingly high profits and healthy revenue growth for the last three months.
But the data came on the same day that Sony, Panasonic, Honda and Mazda all reported strong profit growth.
The two car groups boosted profits thanks to revising car sales in Europe and strong sales in China and other emerging markets.
They offset weaker exports from Japan and sluggish sales in the US market.
Both companies also benefited from a temporary tax credit on environmentally friendly cars which bolstered local sales, but has now ended.
Sony did better, thanks to strong demand for its PCs and PlayStations, while Panasonic saw profits surge sharply after it lifted sales of flatscreen TVs, car electronics and air conditioning units, much of which were made and sold outside of Japan.
With this background, it was no wonder the Bank of Japan last week cut its 2010 fiscal (March 2011 balance) growth forecast to 2.1% annual from 2.6%.
The central bank has been active this month, cutting its key rate to zero – 0.1%, revealing a new round of quantitative easing and now cutting its outlook for the economy.
In its October outlook report, the central bank said it expects Japan’s economy to expand 2.1% in the year through March 2011, and 1.8% in the following year.
It was forecast in July growth rates of 2.6% and 1.9% for the 2010 and 2011 year.
While the central bank again said it saw deflation ending next year, September saw another fall of 1.1% annual in the core inflation rate in Japan (that’s minus food and energy).
The fall in core prices was the 19th month fall in a row for Japan, as sluggish domestic demand continues to depress prices.
The Bank of Japan detailed its latest $US61 billion round of easing (on top of the cheap loans scheme), while the Japanese government is progressing a spending package of similar size.
All will not be enough to shake Japan out of its current stupor.
The BoJ earlier maintained its key interest rate in a range of around zero to 0.1%.
In mid October the Japanese government said the country’s economy had come to a standstill
The Cabinet Office said in a monthly statement the recovery in the economy was "pausing".
It is the most negative the government has been about the economy in nearly two years.
The rising yen and a slowdown in global demand for Japanese exports was blamed for the downgrade.
The ministry termed it as a downward trend in its assessment.
The number of jobless people totalled 3.4 million in September, down by 230,000 from September of 2009.
The unemployment rate fell to 5.1% from 5.2% the previous month.
And Japan’s trade continues to slow with exports again showing signs of losing momentum in preliminary figures for September.
Exports rose 14.4% from September 2009, but shipments were down 0.1% from August, indicating a slowing rate of growth in volume and in value as the stronger yet hits home.
Slowing growth in shipments of cars and steel accounted for the slowdown in overall export growth.
Annual growth in exports to Asia, which account for more than half of Japan’s total exports, slowed to 14.3% from 18%, the slowest rate of growth for 10 months.
Shipments to China, Japan’s largest trading partner, were up 10.3%, also the slowest annual rise since November.
Exports to the US rose 10.4% in September from a year earlier, while Europe took in 11.2% more of Japanese goods than a year earlier.
Imports rose 9.9% and the trade surplus rose to 797 billion yen ($US9.8 billion).
Imports of liquid natural gas and iron ore rose.
For the April-September period, the surplus was 3.42 trillion yen or $US41 billion.
