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Japanese economic growth disappoints

  • Japanese GDP growth slowed to 0.3% on quarter in Q4 from 0.5% in Q3 and missed consensus of 0.7%.
  • Annualized GDP softened to +1% from +1.1% and undershot forecasts of +2.8%.
  • The GDP deflator, "which measures the change in prices of final goods and services and is considered as a key indicator for inflationary pressures," fell to -0.4% on year from -0.3%.
  • Industrial production +0.9% in December vs -0.1% in November and consensus of +1.1%. On year, output +7.1% vs +4.8%.
  • Capacity utilization +2.2% vs -0.5%.
  • Japan's Q4 economic performance was kept down by strong import growth, which is a negative factor in GDP calculations, and a limited increase in exports.
  • Imports +3.5% on quarter, exports +0.4%, business investment +1.3%, consumer spending +0.5%.
  • The soft growth adds to pressure on Prime Minister Shinzo Abe to detail reforms that will make Japan more competitive. This is especially the case with the upcoming rise in sales tax in April.
  • "This weak export performance gives us a sense of risk that the Japanese economy may significantly stall after April," says economist Takuji Okubo. "Abe really needs to be quick in showing to the market that he can deliver reform."
  • The data comes a day before the Bank of Japan is forecast to leave its monetary policy unchanged.
  • Despite the disappointing GDP, short covering helped the Nikkei end +0.6% following a day of choppy trading.
  • The USD-JPY is -0.1% at 101.73.
  • ETFs: DXJ, EWJ, FXY, YCS, JGBS, JGBD, DFJ, JYN, NKY, DBJP, EZJ, EWV, YCL, SCJ, DXJS, JSC, ITF, JGBL, JPNL, JPP, JGBT, JPNS, HEWJ, FJP, JGBB
Comments (34)
  • positivethoughts
    , contributor
    Comments (1928) | Send Message
     
    Japan doesnt innovate. They dont allow immigration. They have an aging population. Their government is too wasteful and spends too much. Taxes are too high.

     

    Japan will never get out of their economic funk. Eventually, when interest rates return to their historical average of 4%, the country will have to declare insolvency.
    17 Feb, 08:10 AM Reply Like
  • JasonC
    , contributor
    Comments (3558) | Send Message
     
    The Yen is so high, and Japanese households so rich on past savings, they could buy everything they need for the next 20 years abroad, without touching domestic anything.
    17 Feb, 04:23 PM Reply Like
  • Tack
    , contributor
    Comments (13554) | Send Message
     
    Explain how a country which issues its own currency can become insolvent. At worst, they'd have to print more to service debts, which might cause the yen to decline, which for export-dependent japan would be a wonderful blessing.
    17 Feb, 04:38 PM Reply Like
  • JJTV
    , contributor
    Comments (125) | Send Message
     
    Well Tack gets it.

     

    Plus, it means that much more interest income going to the private secotor, assuming the central bank doesn't snap it up on the secondary market.
    17 Feb, 05:19 PM Reply Like
  • positivethoughts
    , contributor
    Comments (1928) | Send Message
     
    Their savings are in JGBs. The government of Japan has spent that money. It is gone. They will be 'paid back' with less valuable money. That is equal to default.
    If using a printing press was enough to pay back debts, why does the Japanese government even 'borrow' money in the first place? Why dont they just print and then use it to pay for their needs without ever having to carry any debt? Why even do the accounting? Just print and spend and print and spend.
    17 Feb, 05:58 PM Reply Like
  • positivethoughts
    , contributor
    Comments (1928) | Send Message
     
    The Yen has dropped 20% in the past 18 months. The trade deficit has widened. Please explain Tack.
    17 Feb, 06:00 PM Reply Like
  • positivethoughts
    , contributor
    Comments (1928) | Send Message
     
    If you keep lending money to an entity and that entity doesnt create new wealth with it, but simply pays you principal and interest with the most recent money you just lent them, you really arent earning interest income or any other type of income. You are just paying into a ponzi scheme.
    17 Feb, 06:36 PM Reply Like
  • JasonC
    , contributor
    Comments (3558) | Send Message
     
    "That is equal to default."

     

    No, it isn't, even remotely. People who freely chose to buy JGBs contracted for a definite form of repayment, and that form did not give them any veto over the issuance of additional Yen after their purchase. If they wanted to buy an indexed basket of commodities they associate with purchasing power, they could have bought another financial product that offered scaled repayment based on the future value of such a basket. But they didn't. They bought nominal debt, denominated in Yen. With no gun to their heads, and no guarantees about its future value.

     

    Everyone is responsible for the future exchange value of the items they freely choose to own. No one else must or has guaranteed them a purchasing power in addition, unless that clause is there explicitly in black and white in their contract.

     

    Default is non fulfillment of a legal obligation. If you buy silver and the price goes down, it doesn't mean the person who sold you the silver defaulted. It doesn't mean the mining company that pulled silver out of ore and sold it on the open market stole from you. It means you speculated, and you lost, and you are the only one to blame for the change in the future value of what you freely chose to own. That situation is no different when the item involved is a fiat currency than when it is an ounce of silver. The producers of currency didn't promise you not to issue more, so there is no default when they do.

     

    If you forecast that the value of a given currency will go down, you are free to short it, whether in currency markets or just by borrowing in that currency. You will be responsible for whether that pays off. There is no difference in the legal standing, lack of guarantees, non-existence of any contractual clauses about purchasing power for or against you, when you are long than when you are short the item. Where you position yourself is entirely up to you and the consequences of forecast successes or failures are your own responsibility. They are not anyone else's fault, no one else is wronging you in the slightest in the matter, no matter what direction the value of your assets goes or what they did in their own trades or production in that asset class in the meantime. They didn't harm you in the matter because they had no obligation to you in the matter, to start with.

     

    There is nothing I despise more than unjust accusations thrown around lightly, especially at populist targets, where the injustice of the charge is supposed to be able to hide behind the popularity of the accusation. Charitably it is a misunderstanding. Too often it is a conscious smear of other men who are entirely blameless in all of it.
    17 Feb, 06:53 PM Reply Like
  • positivethoughts
    , contributor
    Comments (1928) | Send Message
     
    You sound like a lawyer, one who could explain away any wrong-doing by dissecting every word spoken or written between two people until you reach the conclusion you wanted to reach all along.

     

    Exit Question: If increasing the money supply in order to pay back monies isnt default, why does the government have counterfit laws on the books? Why not let everyone increase the money supply on their own?
    17 Feb, 06:59 PM Reply Like
  • Tack
    , contributor
    Comments (13554) | Send Message
     
    pt:

     

    That's a good question. Perhaps, Japan still isn't as competitive as it needs to be versus it's very aggressive surrounding Asian competitors.
    17 Feb, 07:02 PM Reply Like
  • Tack
    , contributor
    Comments (13554) | Send Message
     
    pt:

     

    See below, as to where Japan's strong-currency wealth goes. They're not just burning it up.
    17 Feb, 07:03 PM Reply Like
  • Angel Martin
    , contributor
    Comments (1311) | Send Message
     
    "...Explain how a country which issues its own currency can become insolvent. .."

     

    that would be when interest on debt exceeds 100% of gdp

     

    Japan's nominal gdp is below what it was in 1997.

     

    http://econ.st/1bfXIWe

     

    everything japan has tried to do to increase nominal gap growth has only succeeded in increasing debt.
    17 Feb, 08:32 PM Reply Like
  • Ray Lopez
    , contributor
    Comments (1530) | Send Message
     
    Easy for JP to become insolvent, if savers go outside their country with their money, and hyperinflation ensues. However, with Japan's current debt-to-GDP ratio that will not happen soon, since it's not over 200% (contrary to public media stories) but, if you factor in their current-account surplus and high consumer savings, it's more like 120%, still dangerous but not redline yet.
    17 Feb, 09:41 PM Reply Like
  • JasonC
    , contributor
    Comments (3558) | Send Message
     
    Counterfeiting is not a crime because it increases the money supply, it is a crime because it is issuing someone else's liability without their consent and for your own benefit rather than theirs.

     

    You can write all the promissory notes or checks you like, you just have to sign them with your own name. If I sign one with your name and put you on the hook for it, then I have committed fraud against you and the counterparty I gave the check to. Counterfeiting it exactly that - someone who isn't the bank of issue, issuing bank of issue liabilities himself, without their permission and for his own benefit.
    18 Feb, 01:01 PM Reply Like
  • positivethoughts
    , contributor
    Comments (1928) | Send Message
     
    The U.S. dollar isnt backed by anything, so you are not issuing liability when you print U.S. dollars.
    9 Mar, 10:02 PM Reply Like
  • JasonC
    , contributor
    Comments (3558) | Send Message
     
    Wrong. High powered dollars are liabilities of the Federal Reserve. Bank deposit dollars are liabilities of the issuing bank. In the case of the former, the Fed buys specific assets when it issues new dollars - Treasury bonds and mortgage backed securities. Those assets are themselves debts denominated in dollars. And they are discharged as paid in full when dollars are paid for their principal. The Fed as holder of those debts gets back the liabilities that it issued when they are repaid, as they mature. Dollars in circulation thus have a definite use - to pay those debts as contracted. And the Fed is obligated to take its issued liabilities back as payment in full for those assets, and does so.
    10 Mar, 01:35 AM Reply Like
  • positivethoughts
    , contributor
    Comments (1928) | Send Message
     
    I thought all money was issued with 'This note is legal tender for all debts, public and private'.
    10 Mar, 08:44 AM Reply Like
  • CautiousInvestor
    , contributor
    Comments (3057) | Send Message
     
    Abe boldly announced that he would fire three arrows to transform Japan's comatose economy. He happily and without opposition fired the first two arrows, deficit spending and further quantitative easing. Fun and easy measures. The third arrow, including a raft of structural reforms, remains in his quiver because of strong opposition from vested interests, especially in the agriculture, health care and labor sectors. Further there had much hope consumers would participate in a spending jubilee in advance of April"s planned hike in the national sales tax to 8% from 5% but this is proving elusive because real wages are falling as corporations are not sharing greatly improved profits. Let's say the tax increase is the fourth arrow and is designed to curb mounting government debt. But rather than curbing government spending, Abe would rather increase taxes and if history repeats itself it could carry enormous repercussions as the last time the national sales tax was increased in 1997 to 5% the country quickly entered into recession. Pure genius: implementing the fun stuff, delaying reforms and raising taxes rather than cutting spending
    17 Feb, 09:04 AM Reply Like
  • CautiousInvestor
    , contributor
    Comments (3057) | Send Message
     
    With too much time on my hands today, I wanted to revisit the subject of Japan and after reading a number of articles have patched together another piece that includes cut and paste material.

     

    Japan’s economy failed to regain momentum in the last three months of 2013 as growth reached just a third of the level economists had forecast, raising questions about the durability of the country’s “Abenomics” recovery. Gross domestic product rose by 1% on an annualized basis in the three-month period to December, compared with market estimates for a 2.8% expansion.

     

    Data showed that home purchases – a focus of the pre-tax-rise rush – were up 4.2 per cent from the previous quarter. Consumer spending increased 0.5 per cent, capital investment by companies rose by 1.3 per cent and government spending also increased, though at a slower pace than in the previous period.

     

    Many in Japan have seen a weak yen as an economic cure-all, and the currency’s decline of more than 20 per cent has indeed boosted profits at global manufacturing groups such as Toyota. But it has done so mainly by increasing margins on goods that companies sell overseas – and, increasingly, produce there too – while having relatively little effect on export volumes.

     

    And a small increase in the value of exports, at 0.4 per cent, was not nearly enough to offset a 3.5 per cent surge in imports, leaving trade as a net negative for the economy. Growth in imports has been outstripping growth in exports leading to yawning trade deficits which continue to widen. Japan is expected to post a record trade deficit in January as a weak yen pushes up the cost of imports and as export demand slows in a cautionary note about the economic outlook.

     

    Additionally, export growth has remained sluggish because of softer demand in Asian markets and a shift by Japanese companies of their manufacturing plants to offshore centers. Compounding the problem is that Japan has also seen a surge in imports, mostly of fuel, to supply the country with fossil fuels after its nuclear plants were mothballed following the 2011 Fukushima crisis. Put simply, the soft yen strategy is not working.

     

    The weak external sector is a worry for Japan especially as the initial burst of momentum created by Prime Minister Shinzo Abe's unprecedented monetary and fiscal expansionary policies start to fade. Some economists worry that net exports could further subtract from growth this year as companies continue to look for low-cost places outside of Japan to produce their goods, which means they ship less from Japan.

     

    Unbelievably, some are suggesting further quantitative easing as means out of Japan's quandary of economic stagnation.
    17 Feb, 05:09 PM Reply Like
  • User 353732
    , contributor
    Comments (4910) | Send Message
     
    For the past 25 years Japanese growth has disappointed those who deny that Japan is now in a multi decade demographic, economic and strategic decline.
    Japan has crossed both the demographic and debt tipping points and stagnation is now the best it can achieve. The one potential growth industry for Japan is military technology that can generate substantial exports to Asian nations who have increasing contempt for US promises and increasing fear of Chinese imperialism...but this requires a rediscovery of national will and purpose by Japan and greater allocation of resources to Japanese national security.
    Since India, Japan and Indonesia no longer trust the US and fear China ,military trade and cooperation amongst these 3 nations( with Vietnam as a fourth partner) could be a significant development.
    17 Feb, 12:41 PM Reply Like
  • divinecomedy
    , contributor
    Comments (466) | Send Message
     
    I wonder whether this will be the year where those short the Japanese Yen will be carted off to the morgue once again.
    17 Feb, 12:49 PM Reply Like
  • Moon Kil Woong
    , contributor
    Comments (11153) | Send Message
     
    "The soft growth adds to pressure on Prime Minister Shinzo Abe to detail reforms that will make Japan more competitive. This is especially the case with the upcoming rise in sales tax in April." Abe is setting a path towards the destruction of Japan's zombie economy. By increasing QE which floods the economy with inflationary pressure and raising taxes which sucks money out of the private sector and to the government and his administration he is giving Japanese citizens not a boost but shock treatment to inflationary pressure that they have been insulated from.

     

    This not only transfers wealth from the citizens to banking and the government, but it also negates itself out in the long run and then becomes a drain on the economy, not a boost. What Japan is calling economic growth is nothing more than getting less for more economics where economic growth reflected in currency rises with little to no rise in actual consumption.

     

    On top of this is Abe's bold moves to create nationalistic sympathies by angering China. Abe can continue the farce by selling off their best assets through deals like Tokyo Electron which will only lead to more jobs fleeting the country in return for a short term boost in cash. As one can easily see, all his decisions are selling out Japan long term for short term gain.

     

    Watch out Japan, Abe is sowing the seeds of your next major collapse which will make the great collapse look trivial.
    17 Feb, 03:07 PM Reply Like
  • positivethoughts
    , contributor
    Comments (1928) | Send Message
     
    Japan cant afford to build up its military and keep pace with China. If they allocate another 2 - 3% of GDP to pay for increased defense spending, they will head toward bankruptcy that much faster.

     

    Japan is done. The only thing they can do to save themselves is to allow massive influxes of new immigrants - wealthy and young people willing to come to Japan and invest. But Japan hates non-Japanese people, so allowing new business immigrants to migrate is out of the question.
    17 Feb, 06:23 PM Reply Like
  • Tack
    , contributor
    Comments (13554) | Send Message
     
    What's almost always overlooked in the perpetual gloom-and-doom arguments about Japan is that they are the world's largest holder of foreign assets. Think about that for just a second.
    17 Feb, 04:39 PM Reply Like
  • positivethoughts
    , contributor
    Comments (1928) | Send Message
     
    They own assets that are worthless. The U.S. government cant pay back Japan and Japan cant pay back its own people.
    17 Feb, 06:02 PM Reply Like
  • Tack
    , contributor
    Comments (13554) | Send Message
     
    pt:

     

    Now, you sound like like someone, who doesn't understand finance. Sure, all Japan's vast foreign assets are "worthless."

     

    You expect anybody to carry on an intelligent discussion with such views?
    17 Feb, 07:05 PM Reply Like
  • positivethoughts
    , contributor
    Comments (1928) | Send Message
     
    According to you, if every country simply printed their own currency, no one would ever have to face default pressures.
    17 Feb, 07:34 PM Reply Like
  • Ray Lopez
    , contributor
    Comments (1530) | Send Message
     
    @positivethoughts: you are awfully negative for such a moniker!

     

    LOL FYI the United Kingdom back in the late 18th century had a debt-to-GDP figure of well over 200% (source: Niall Ferguson, The Cash Nexus) and they did not default. Japan's Debt-to-GDP, if you factor in their private savers, is close to 120% (not 200% as reported in the media). Some argue the Industrial Revolution saved the UK from default, but that's a separate issue. Further, in theory you can sell off state assets to foreigners and others to pay off debt (unlikely, given the nationalism in Japan, but it's theoretically possible). I am long on Japan but also feel it is a blueprint of how the USA will turn out, long term, namely, stagnation.
    17 Feb, 09:47 PM Reply Like
  • tunaman4u2
    , contributor
    Comments (3071) | Send Message
     
    Tack- Japan is the largest holder of foreign assets... so? They print money to buy those assets. What relevance does that have for the economy & citizens of Japan?

     

    You see... doom & gloom may be silly to you... but the fact that an insolvent nation that prints to space & back holds the most foreign assets... a country with one of the highest debt to GDP ratios is clearly a sign that the doom & gloom people are right.

     

    Seriously. how backwards is that?
    17 Feb, 09:56 PM Reply Like
  • positivethoughts
    , contributor
    Comments (1928) | Send Message
     
    Ray,

     

    Isnt domestically held Japanese private savings mostly invested in the Japanese government? Either through the banks buying JGBs, the insurance companies or the big investment firms buying government debt?

     

    The government spends that money as soon as it comes in and then asks to borrow more to keep their spending going.

     

    Those savings are worthless.
    17 Feb, 10:27 PM Reply Like
  • Tack
    , contributor
    Comments (13554) | Send Message
     
    tuna:

     

    They print "paper," which you consider worthless, and exchange it for hard assets all over the world, but that's not good for Japan? And, you're being serious, no less?

     

    Japan has a weak domestic economy, but a vastly overvalued currency, so, they convert their overvalued currency into lots of foreign hard assets, so that if their currency deteriorates, the value of their assets doesn't. This is an extremely smart strategy. They're taking maximum advantage of the value of their currency, while the opportunity exists.

     

    When currencies are overvalued, you buy foreign assets, and when they're undervalued, you sell.
    17 Feb, 10:59 PM Reply Like
  • jakoba
    , contributor
    Comments (345) | Send Message
     
    Ironically a reason why the Yen got so strong right after the financial crisis was the trust in the underlying fundamentals of Japan versus other countries - a reason for this was their huge international investment position ($6T assets, $3T liabilities). No-one seems to mention this much. But I suspect perhaps that US & British media where we get most of out information, would by mentioning this, point out their own weakness. For example UK has as much total debt as Japan, at around 550% of GDP, if all debt is included (not only government debt). But UK has $200B in net international liabilities, US has much more. Also of these foreign assets, Japan has stakes in oil/gas/commodities producers also, hence the idea that Japan has no commodities must be taken with a pinch of salt - also because of its large sea territory potentially (10x the country itself) with reserves of oil, natural gas and rare earth minerals (likely the major reason for the conflicts with China recently as the East China sea is potentially very rich in oil and gas).
    18 Feb, 05:11 AM Reply Like
  • Robert Duval
    , contributor
    Comments (4430) | Send Message
     
    One of the things beginning to happen, is a reversal of the carry trade. Yen shorts will get fried, and will result in speculative excess coming out of other equity markets.
    17 Feb, 07:13 PM Reply Like
  • convoluted
    , contributor
    Comments (1964) | Send Message
     
    ok-a morsel worthy of consideration: but could you provide a bit more on the term 'speculative excess' please. And, how do you see the correlation between the yen carry trade and equity markets? I suppose part of the answer must relate to the actual size of the yen carry trade (actually I don't 'suppose' but interested in your take)-
    Thanks.
    17 Feb, 09:07 PM Reply Like
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