Henry, I tend to concur with your skepticism on the Japanese gov numbers...
Most people get the impression that the recession in Japan is really dreadful, people are walking around with glassy eyes and there is no money being spent by those now legendary olympic savers...
Quite far from the truth, there is I find plenty of money sloshing around, especially since the government has just opened the spigots in the last year or so. The consumer has money, and in a deflationary world it becomes stronger every day. What you mentioned in this post:
>>In the US I believe the Fed is more motivated their concerns re excess demand than inflation. Nothing
in the recent data suggest a real danger of an inflationary spike<<
and a little later you say:
>>a convincing arguement can be made that one of the biggest problems in Japan results from the
very strong capital spending related to the equity spike in the 80s. This huge amount of excess
capacity still sits like a weight on the Japanese economy. <<
This huge amount of capital created a huge overcapacity in just about anything. There is always the line that goes like this: If only all that pent up demand could be released. It supposedly would restart the economic engine. I am not so sure it could just be made to happen so quickly. Any demand is met with enormous production capacity, pricing power is almost immediately eroded . Until the excess capacity is purged (companies lay off, restructure, get out of business lines or go bankrupt), things will not pick up.
The government has spent and has promised to spend again in the short future an ENORMOUS amount of money on public works, some I must say very much needed in infrastructure (side walks, parks and rest areas near train stations, downtown "silver citizen" friendly areas etc) while , especially for the bigger projects (bridges, highways and dams) I must say mountains of money are being wasted. The stated goal is to provide employment and to get money fast to dying construction companies, not to efficiently improve infrastruture.@A lot of the projects are rammed through or seem to be very poorly planned . So, while the last GDP numbers looked good, there is absolutely nothing long-term in this kind of spending, and my feeling is, if it fails, this time they are in big trouble, being at the end of that alley (public works).
The government has also, quite rightly stated I believe, that the revival of Japan lies in its small and medium size companies and in new industries, which they have made a list to be prioritized (MITI's idea it sounds...) I remember seeing it a while back in the financial press, bio-technology, information technology, environmental processes and tech for sure, I think welfare and care for the elderly were sectors to be given a high priority. This will take time, and like any other major shift, the people displaced in one industry may or almost surely will not fit in the new ones emerging.
That said, and I think Paul Berliner, if you are reading this far, you will agree, the service sector is still growing. A whole host of services that didn't exist even 5 years ago, are expanding briskly through the recession. I can think of home delivery services, cleaning services (office, homes ) , telecommunications (internet and wireless), financial (brokerage gearing up for big bang) as well as new concepts of retailing (convenience stores were practically inexistant 4 years ago, now they have mushroomed ad nauseam...) which are in themselves types of services. There was even a start up-stand alone airline coming into the anemic travel market. So far they are still flying... People are willing to pay for these and like I said earlier, there is enough money sloshing around to provide a good buck for the innovators.
To summarize ( I feel I am getting a bit to windy here):
Japan has :
1-huge production overcapacity
2-underemployment (in some industries, it is estimated that up to 30% of people are redundant)
3-no way to go down on interest rates
4-little leeway in increasing government deficits
ALthough I believe the other members of the group of 8 will do everything to publicly support Japan and put a positive spin on things in order not to spook the crowd, I would be careful here. On top of the 4 domestic negatives I listed above, I find 3 international factors could in themselves seriously damage any hope for a quick recovery. They are:
1- US stock market crash followed by marked slowdown in US economy
2- Yen appreciation
3- Chinese devaluation
All disclaimers apply, including the right to be wrong.
sg |
