At the moment Japan must be looking at the UK with some bemusement. That is because it has been a country with political instability with a merry-go-round of Prime Ministers and yet an axis has shifted. We are now in a type of flux whereas Prime Minister Shinzo Abe has been in power since November 2012. This means that his economics policy of Abenomics has had a decent run in terms of time and yet again we see someone who has taken the Matrix style blue pill and declared it a success. Let me hand you over to Matt O’Brien of the Washington Post.
Its unemployment rate has fallen to a 22-year low of 2.8 percent — yes, you read that right — due in large part to all the yen it has created the past four years.
The former which we have looked at before is a success and it is the flip side of this.
Maybe the best way to tell isn’t its super-low unemployment rate, but rather its super-high employment rate. That, as you can see below, has shot up since the start of Abenomics to an all-time high of 83.5 percent, making our own 78.3 ( He means the US ) percent rate look downright measly in comparison.
Again a success in itself as the quantity measures in the labour market are as strong as anywhere. But then we get an enormous leap of what I can only call faith.
It can’t be the fiscal or structural parts of Abenomics, because they’ve barely been tried……..All their money-printing seems to have given businesses the confidence — and the cheaper currency — they needed to expand a little more.
Thus we see a conclusion that the money printing has led to higher employment. Some would argue that with a fiscal deficit of 4.8% of GDP in 2015 and 4.5% last year with a debt to GDP ratio that fiscal stimulus had been tried rather a lot. Also there seems to be any lack of a causal relationship as the phrase “seems to have” suggests. Let us finish with some hyperbole.
And all it would have taken was printing a few trillion yen, which actually isn’t that high a price to pay.
Numbers may not be a strength for Matt as we remind ourselves of this from the 6th of this month.
At the end of May 31 2017, the Bank of Japan held a total of 500.8 trillion yen in assets,
Taking the red pill
Dissent in Japan is mostly considered to be non-Japanese so this from the Nikkei Asian Review ( NAR ) is interesting. First the ground is described.
“In order for Japan’s economy to achieve more than a recovery and continue stable, long-term growth after that, it is essential to strengthen Japan’s growth potential,” proclaimed a key economic and fiscal policy plan finalized in June 2013,
Okay so what has happened since then?
But the country’s potential growth rate now stands at 0.69%, according to the Bank of Japan, compared with 0.84% in the second half of fiscal 2014 — a sobering take on what Abenomics has actually accomplished.
If we return to the case made by Matt O’Brien above the fact that estimates of the potential growth rate have fallen seems to be missing doesn’t it? That is awkward for business supposedly being more confident in response to a promise to print money to infinity and maybe beyond. The tectonic plates on which supporters of QE stand would be on their own Ring of Fire if there are further suggestions that it reduces potential economic growth. I have been a critic of QE style policies and note that this below suggests yet another problem with the claimed transmission mechanism.
But while tax cuts helped boost businesses, many are merely hoarding their cash. Total internal reserves held by Japanese corporations have grown some 40% under Abe to 390 trillion yen. No solutions are in sight.
The NAR seems to agree with me about the trajectory of fiscal policy as well.
In terms of fiscal policy, Japan has passed seven supplementary budgets in just five years, spending about 25 trillion yen in the process.
“Extreme fiscal spending and other measures have led to a distorted allocation of resources in the economy and reduced productivity,” said Ryutaro Kono, chief Japan economist at BNP Paribas.
Also the NAR fires a lot of criticism at the so-called third arrow of Abenomics which is reform in Japan.
The debate on compensation for unfairly dismissed employees has stalled. While Tokyo opened the door for foreign workers with exceptional skills or those in certain sectors such as cleaning, it has shied away from a comprehensive discussion on immigration. Momentum to tackle regulatory barriers is fading.
It points out that if Abe wished to reform the labour market politically he is in what might be called a “strong and stable” position due to the way his party the LDP controls both the upper and lower houses in parliament.
There was some disappointment last week as the economic growth figures for the first quarter took a downwards revision.
The expansion in real gross domestic product, the total value of goods and services produced in the country adjusted for inflation, was revised to an annualized 1.0 percent growth from the previously estimated 2.2 percent expansion, the Cabinet Office said. ( The Japan Times ).
The good part of that was that it meant that Japan had grown for five quarters in a row which it had not done for over a decade. There were two bad parts though in that as well as being in the economic growth dog kennel with the UK there was an implication for the Abenomics plan of boosting inflation to 2% per annum.
In nominal terms, or unadjusted for price changes, the economy shrank an annualized 1.2 percent, the biggest contraction since 2.2 percent registered in the July-September period of 2012.
Also the period of Abenomics was supposed to see a rise in inflation and more particularly a rise in wages. As the Japan Times reminds us the labour market is tight.
Moreover, there were 148 job positions open for every 100 people looking for work, the highest ratio in 43 years.
But wage growth is at best anemic.
But the labor ministry reported that in 2016, wages across the board — regardless of whether we’re talking full-time or part-time employment, regular or nonregular employees — only rose by 0.4 percent
Why? Well as we observe in some many countries official definitions of being in a job miss changes in the real world.
a larger portion of the workforce is in part-time and non regular jobs, which traditionally pay less.
There have been some extraordinary claims made for the success of monetary easing and QE. In my opinion we see a clear divorce between the financial and real economy. If we look at the financial economy in the era of Abenomics we see booming equity markets ( the Nikkei 225 has risen from 9000 or so to ~20,000), a lower currency ( versus the US Dollar it has gone from 80 to 110) and booming bond markets with a ten-year yield of 0%. But the real economy has not seen the boom in wages promised nor any great turn in the rate of GDP growth. Ironically it has been the recent fall in inflation that seems to have given GDP an upwards push rather than the claimed surge to 2% per annum.
Meanwhile the real challenge is adapting to this.
The annual number of babies born in Japan slipped below 1 million in 2016 for the first time since records began, with the estimated figure for the year coming in at 981,000, according to government figures. ( Japan Times)
The reminds us of the demographic changes underway highlighted by the fact that the figures for the 6 months to May showed the population falling by another 245,000. Exactly how will QE fix those?