Well, it was either good news, or slightly not so good news.
Japanese economic discussion is highly political, completely non-transparent, and at the moment dominated by an almighty brawl over who should head the country’s central bank, The Bank of Japan.
The big downward revisions in Japanese economic growth in the fourth quarter of 2007 didn’t happen to the extent previously thought, because exports are doing better than expected.
But now a rising yen and soaring commodity prices are claimed to be threatening the export boom: or maybe not.
That brawl and the leadership gap at the bank is probably the biggest threat to the economy because it has been independent of successive Liberal Democratic Party administrations on most occasions. Now the spectre of a political compromise could wreck that image of independence and turn the central bank into a creature of whatever faction was running the government.
Fourth quarter gross domestic product rose an annual 3.5% in the December quarter, according to figures from the Japanese Cabinet Office (Itself something that mystifies western commentators). That compares to the initial estimate of 3.7% and considerably more than the 2.3% estimated by economists in a survey by Bloomberg.
The yen rose as the Japanese stockmarket rose after the Fed’s intervention to promise at least an extra $US200 billion a month in extra funding to American financial markets.
The figures showed actual growth in the quarter was 0.9%, unchanged from the first estimate on February 14.
Net exports, or in Japan’s case the huge and growing trade surplus (in the case of Australia its trade and current account deficits which detracts from growth), added 0.5% to growth, up from 0.4% in the first estimate.
As reported later in February, business investment was slower, up 2% compared to the initial estimate of 2.9% while consumer spending grew 0.2% to be unchanged from the February 14 figures.
Driving the export sector is shipments to markets outside of the slowing US which took fewer goods in the quarter. Shipments to the emerging economies in the so-called BRIC group (Brazil, Russia, India and China) are up, despite the rising value of the yen. Emerging countries now take around half Japan’s exports (and of course provide much of the imports being commodities producers).
Despite the ‘good news’ on the growth and trade front it’s the brawl over who will run the Bank of Japan that is being closely watched inside and outside of the country.
A stalemate has developed in the parliament over a replacement for the current Bank of Japan Governor, Toshikio Fukui, whose term expires in a week. The Japanese upper house or senate yesterday rejected the government’s nominee, Tosjiro Muto, presently a senior executive of the bank. This opposition is linked to other political issues between the opposition parties, which control the upper house and the LDP, which controls the lower house and forms the government.
The growth figures, export numbers and the impact of the rising yen illustrate the need for a steady hand at the bank and its independence.
Japanese companies have started agitating for some policy moves to drop the value of the yen. The stronger yen as well as record oil and raw-material costs are squeezing margins (commodity prices are increasing faster than the rising yen to cut the rate of growth).
Wholesale inflation accelerated to the fastest in 27 years last month, the Bank of Japan said yesterday while last week the Finance Ministry said corporate earnings fell in the final quarter of 2007.
Japanese wages haven’t kept pace with either wholesale or consumer inflation, and are down in real terms, which has helped depress consumption.
Smaller companies supplying big groups or operating solely in the domestic market are being squeezed more than the likes of Toyota or Honda.
If this impasse at the Bank of Japan is resolved by a poor quality choice for the governorship and interest rates are cut from the current 0.50% (derisory), then that would knock the yen lower (until the US dollar resumes its long slide).
But that would be inflationary at a time when the stronger yen should be allowed to help choke off the surge in import prices in particular.
The yen hit an 8 year high Tuesday against the greenback and although the American currency rose on the Fed move, it wasn’t terribly convincing.
