Japanese production and retail sales posted strong numbers as the economy ‘rebounds’ from the doldrums. Japan has been busy fighting deflation, as they have been for the past decade.
Japan’s economy runs like a standard transmission car driven by a novice – it jerks back and forth. Don’t let these numbers fool you. Japan is in the pit of deflation and its only salvation is a cheap Yen and exports.
“Right now, the economic recovery is being pulled by exports and inventory adjustments,” said Naoki Iizuka, senior economist at Mizuho Securities Co. in Tokyo. “Once we hit the second quarter, manufacturers’ capital spending will be a new contributor to the economy’s growth.”
This sounds remarkably familiar… Like the US, there are a lot of uncertainties in Japan’s economic recovery. Will capital spending pick up? Will final demand recover?
“We’re continuing to see the effects of government stimulus measures,” said Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities Co. in Tokyo. “In the meantime, employment has at least stopped worsening.”
Ah, stimulus. Japan is the model of what not to do when it comes to fiscal stimulus.
True, uncertainty is usually an investor’s friend – buy on rumor, sell on fact. But Japan has proved that a secular decline is difficult to fight, with Japanese equities still close to the bottom of a 20yr bear market. It has been an uncertain slide all the way down for Nikkei index futures.
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