Japan Economy Trips HardDec 9th, 2009 | By Rob | Category: Global Slice
Japan's revised 2009 third quarter growth fell to a third of the economy's previously reported GDP, as corporations slashed spending and prices fell. The initial estimate of 2009 Q3 growth reported the pace of expansion at 4.8% annually compared to the most current revision to 1.3%.
Prime Minister Hatoyama announced a 7.2 trillion Yen ($81 billion) stimulus package to aid the distressed economy, as the rate of deflation was shown to be accelerating over the three months ending in September at -0.5%. In nominal terms economic growth for the period actually declined -0.9% highlighting the true effects of the deflationary environment.
The incoming Democratic Party of Japan (DPJ) has inherited a legacy of big stimulus spending from the Liberal Deomocratic Party (LDP), including $6.3 trillion worth of infrastructure outlays since 1991, and a indebted fiscal balance sheet to the tune of 190% x GDP. Thus it's not surprising that PM Hatoyama hasn't changed much as he plans to tack on the additional $81 billion in the form of a Japanese Cash for Clunkers equivalent, subsidies for "green" housing & consumer products, cheaper mortgage rate home buying incentives and more subsidized private sector salaries. Yet, the habitually borrowing stimulus crutched state won't feel stimulated, simply further drained and taxed moving forward as depicted through the visual below from the FT.
What is truly crippling the country and the fiscal policy moving forward is the inability of firms to compete as the prices of goods consumed in the country falls and prices of Japanese goods sold outside of the country rise. The following chart will shed further light on the equally important imbalances among Japanese products sold domestically, imported from abroad, and exported to foreign consumers. Wages are falling, the government subsidizes the cost of employees salaries and firms are struggling to compete abroad.
The future for Japan looks dim as deflation takes a tighter grip, growth wanes and debt soars. Keep a close eye on the world's second largest economy as global financial markets respond to the ensuing course of events.