Rising Sun?

Is Japan in a recession?

JAPAN

Source: Wikipedia

It is if you believe the most recent news. Japan’s economy contracted last quarter, after falling the quarter before that. Two successive quarters of declining GDP are usually enough to be considered a recession. The bad news led Prime Minister Shinzo Abe to delay another sales tax hike scheduled for next year, and to call for new parliamentary elections as a sort-of national referendum on his economic policies, “Abenomics.”

But if this is a recession, it’s unlike most downturns. Their unemployment rate is currently 3.6% down from 4.1% a year ago and one of the lowest in the world.

FRED

Source: FRED

The recent bad economic news was probably caused by an inventory correction, not fundamental economic weakness.

Abenomics is a combination of fiscal stimulus, monetary easing, and structural reforms. The last sales tax increase was supposed to assure the bond market that Japan had the will to address its gargantuan accumulated debt, currently 230% of its economy. But the tax hike caused consumers first to accelerate purchases, then defer them, and now for producers to cut their inventories. No matter where the economy is, people respond to incentives. It’s not enough to deflate the currency. Japanese taxes penalize second incomes, discouraging households from augmenting their earnings.

Japan’s economy is a witch’s brew of advanced technology, special incentives, and declining demographics. Breaking out of a deflationary spiral is hard. We all hope Japan can do it.


Douglas R. Tengdin, CFA
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Phone: 603-224-1350
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By | 2017-07-17T12:23:12+00:00 November 24th, 2014|Economics|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
Leave a comment if you have any questions—I read them all!
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