Japanese Industrial Production Bounces

Japan's industrial production surged 14% in the three months ending May 2009. That's one more green shoot that demonstrates the global economy is not in free-fall and in fact is rebounding from the sharp decline of late last year. The down-sequence goes something like this: global demand collapsed as fear of widespread bank failures swept the markets; counterparty risk blew sky-high, with the result that banks stopped writing letters of credit; without letters of credit, global trade ground to a halt; as inventories built up, production was slashed.

The up-sequence began early this year: Financial markets began to recover, as swap and credit spreads declined and liquidity returned; with counterparty risk rapidly declining, banks began writing letters of credit again; with letters of credit, global trade resumed; with confidence returning, demand started picking up; inventories began declining; and finally, with inventories declining, manufacturers are once again ramping up production.

Evidence of this process can also be found in the rise this year of the prices of commodities, energy, and equities.

Comments

[Mad Hedge F...:]

You won't find my money there. It’s sad to see a once great country fall on hard times. It’s like watching a formerly leading hedge fund manager apply for food stamps. I’m talking about Japan, which in 1989 boasted the world’s most valuable stocks, largest banks, and strongest currency. Oh, how the mighty have fallen. This week the Ministry of Finance published the trade figures for May showing a 42% YOY drop, and that the cataclysmic fall in exports continues unabated, as foreigners keep their money in their pockets instead of buying high quality cars and electronics. Even exports to China fell 29.7%. I’m sure the chart below will be found in business school textbooks for decades to come as proof of the risks of running an overly export dependent economy. Although a giant fiscal stimulus package will start to hit in the second half of this year, most economists have GDP forecasts for the year of minus 6.8% or worse. This would take GDP back to the 2004 level, and make our economy look positively bubbliscious by comparison. This is all happening when the numbers of those retiring is going through the roof, causing welfare payments to skyrocket. Taking a page out of Obama’s playbook, the government is borrowing to meet these costs, so the national debt is expected to reach the certifiable nosebleed territory of 197% by next year! Prime Minister Taro Aso has so far fought off increased consumption taxes, but it is just a matter of time before those efforts are tossed out the window. Continued deflation is a no brainer. Real estate prices are still stuck at 30% of their 1990 levels. This is what an “L” shaped recovery looks like up close and ugly. In the meantime, the yen strengthens, making exports ever more expensive and uncompetitive. Better to stand aside from the Land of the Rising Sun and watch with tears. Is the US next?

Jun 30 01:39 PM