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Japan Falls into Recession

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Re: Japan Falls into Recession

#91

Post by ekianjo »

cynicalkane wrote: post #74
ekianjo wrote: post #57

Earlier quoted context omitted.

> Additionally Increased GDP will bring more revenue The thing is with the current policy you won't get much increased GDP. Prices are going up in Japan now, which will lead to decreased consumption, decreased savings (or maybe actually an increase in savings vs spending if Japanese feel the worst is yet to come) and negatively impact GDP. Wherever it's going, it's not good anyway.

This is incorrect. GDP growth in Japan jumped when it became clear Abenomics was going forward, and un-jumped when the recent tax increase went in. The annualized growth[1] in between these two periods has been greater than 2%, with falling unemployment, despite a declining workforce. The growth right before Abenomics was negative and falling. [1] For this comparison, make sure to use annualized QoQ figures. Data-ill…

I'm not talking about short-term changes in GDP. I'm talking about longer term ones, obviously. Nothing in Economics is worth measuring on a 6 month scale. Political decisions on the Economical climate take dozens of years to take their toll and have marking impact.

Re: Japan Falls into Recession

#92

Post by azernik »

akg_67 wrote: post #76

We have been traveling in Japan for past 4 weeks (another 2 weeks to go). Talking to regular folks, there seems to be divergence between what regular folks thinks need to be done compared to government. The regular folks want to see Dollar-Yen parity. As Yen drops, things become more expensive and regular folks cut back more on spending. I am not sure why increasing cost of imports doesn't show up as inflation. Thing…

> These folks don't believe dropping Yen is the solution as majority of investment by Japanese companies is outside Japan and weaker Yen just reduces that investment, in turn less profit flow back in the country.

The more expected result would be a change of investment patterns so that more is invested inside Japan; investments abroad bring back only a relatively small amount of money back into the domestic economy and spread over a long period of time, as opposed to domestic investment which generally involves spending in the local economy and increased aggregate demand.

> The expectation of deflation is deeply rooted in regular folks. Everyone is waiting to spend on large items, just not right now.

And this is exactly why some inflation (caused by QE and a falling yen) would be a good thing - delays in consumer spending are a classic pitfall of deflation.

This doesn't sound like an issue of the average Japanese citizen knowing less than the establishment or vice versa, but of individuals making rational economic decisions are good for them, but bad for the economy as a whole.

(BTW, I agree with you on the VAT increase, which sounds like the exact wrong thing to do to get out of this low-growth, deflationary trap Japan has been in for so long.)

Re: Japan Falls into Recession

#93

Post by nichtich »

Before Abe, Japan is in a trap:

1. It has 200% debt-to GDP ratio

2. It has near zero interest rate and negative to zero inflation

3. It has near zero growth rate.

It's important to understand how this trap works: Japan simply can't have meaningful growth. If there's real growth, that will force the interest up, otherwise there will be mass misallocation and high inflation. But given a 200% debt to GDP, the government just can't afford a higher interest rate, as the debt servicing cost will eat up most of the budget. So, assuming growth rate and interest rate is about the same (big if, i know), for just maintaining the status quo (regarding debt burden), for every x% the economy grows, the government has to raise 2x the amount to cover the interest expense. That's how scary it is.

That's why there's this sales tax hike and the consequent gdp dip. While other country with lower debt to gdp ratio can keep stimulating for a long time and only deal with the debt problem after recovery, Japan can't. It has to increase the government revenue relatively early, because it has a much smaller buffer to begin with.

Re: Japan Falls into Recession

#94

Post by ekianjo »

hudibras wrote: post #83
dimitar wrote: post #43

Here is the common ground and controversy between most economists on the situation, I think it is interesting how much common ground there is: The common ground: * The government of Japan faces budget constraints; it cannot tax more than a certain amount and that includes seigniorage (taxing using inflation). * Right now Japan doesn't seem to be immediately close to those constraints since interest rates and inflatio…

There's so much about your post which is incorrect that I don't have time to debunk it all. So let me just hit the biggest error, so that others don't have to waste their time: It's literally impossible for Japan to default on their debts, which are almost completely in Japanese currency.

> It's literally impossible for Japan to default on their debts, which are almost completely in Japanese currency.

Banks are not going to be super happy when the government tells them that their bonds are worth nothing through giga-inflationist measures. Or are they ? Default is better than nothing, at least you can pick up the pieces, while inflation is literally destroying your economy for any foreseeable future.

Re: Japan Falls into Recession

#96

Post by j_lev »

econew99 wrote: post #87

I don't understand following - Japan had QE measure in place thus increasing money supply. But then they also increased sales tax from 5% to 8%. Why take conflicting measures ? How increasing sales tax is going to make consumers and middle class spend more ? Have Japan's economists not considered it ?

"We need more women in the workforce to stimulate the economy!"

"We need to encourage women to have more babies in order to avoid a population crisis!"

Welcome to the government of contradictions.

Re: Japan Falls into Recession

#97

Post by ekianjo »

azernik wrote: post #92
akg_67 wrote: post #76

We have been traveling in Japan for past 4 weeks (another 2 weeks to go). Talking to regular folks, there seems to be divergence between what regular folks thinks need to be done compared to government. The regular folks want to see Dollar-Yen parity. As Yen drops, things become more expensive and regular folks cut back more on spending. I am not sure why increasing cost of imports doesn't show up as inflation. Thing…

> These folks don't believe dropping Yen is the solution as majority of investment by Japanese companies is outside Japan and weaker Yen just reduces that investment, in turn less profit flow back in the country. The more expected result would be a change of investment patterns so that more is invested inside Japan; investments abroad bring back only a relatively small amount of money back into the domestic economy a…

> And this is exactly why some inflation (caused by QE and a falling yen) would be a good thing - delays in consumer spending are a classic pitfall of deflation.

What do you mean by "delay in consumer spending" ? Oh, you mean like in the US when people buy everything at credit so that they don't have to wait, and have zero savings and huge debts as they go ? Is that the model you recommend ?

> This doesn't sound like an issue of the average Japanese citizen knowing less than the establishment or vice versa, but of individuals making rational economic decisions are good for them, but bad for the economy as a whole.

You fail to incorporate the bad decisions from the japanese government which are bad for the economy as a whole. As if it were JUST the fault of dumb people. Yeah, elites know much better :D

Re: Japan Falls into Recession

#98

Post by ekianjo »

vilhelm_s wrote: post #62
ekianjo wrote: post #51

Earlier quoted context omitted.

> Deflation tells consumers not to buy as you wait 6 months and it'll be cheaper. I live in Japan for many years and I have never seen such thing as deflation here. Prices have remained stable for most items or have increased a little bit. The idea that stuff becomes cheaper as you wait is ludicrous in Japan.

Japan did have deflation, some years in the 90s and most years in the 00s. See e.g. the curve for 1995-2013: http://www.tradingeconomics.com/japan/consumer-price-index-c... or the "index of all items" here http://www.e-stat.go.jp/SG1/estat/ListE.do?bid=000001033700&...

Inflation/deflation indexes are massively skewed if you don't incorporate the right things into it. How sure are you that these indexes are factually correct?

Re: Japan Falls into Recession

#99

Post by mimighost »

MarkMc wrote: post #88
mimighost wrote: post #72

Earlier quoted context omitted.

Well if they change their mind on immigration, they better be quick. Japan's neighboring countries are quickly catching up, if not surpassing, in a lot of respects, such as PPI and HDI. Even in China, on the east coast, in certain sector, especially high-tech and finance, local companies can offer competitive salary and a better potential for career progress. It is not like in 80s, when Japan is the envy of all kids…

If neighbouring Asians are too rich to immigrate, there will still be plenty of poor Africans for decades.

Well, lets face it.If Japan is so reluctant to accept Chinese/Korean/Other Asians, whose appearance and culture are perhaps much closer to its own than other countries, it will only be harder for it to embrace the rest of the world.

It is pretty much like Asians in US sometimes being called as perpetual foreigners, even if some of them might been in this continent for generations.

Assume Japan is ever going to change its immigration policy, it will surely starts from developed countries and its neighboring states. But as I said in the above comment, the charm around Japan is vanishing, so even with a more friendly immigration policy, how much it could help Japan step out of painful declining is questionable.

Re: Japan Falls into Recession

#100

Post by ekianjo »

mc32 wrote: post #4

Quantitative easing, Yen depreciation... What they need to do is figure out a way to grow the population locally or through large-scale immigration. I'm afraid this is the fate that awaits the developed world (or countries with low population growth). Japan is like a canary in the mine of post-industrialism. It'll be interesting to see what they figure out for their society and the lessons they might have for us.

> What they need to do is figure out a way to grow the population locally or through large-scale immigration

Or drastically increase productivity, or have more people join the workforce. Women are massively under-used in Japan. There's no need for immigration as long as there is a large untapped segment of the population not actively employed.

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