Japan's Economic Outlook Worsening: World Socialist Web Site

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World Socialist Web Site

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Japans economic outlook worsening


By Nick Beams
3 November 2015

The Bank of Japan decided not to further expand its


quantitative easing program at its meeting last Friday,
possibly because to have done so would have amounted
to a tacit admission that its massive financial
asset-buying program of $665 billion a year has failed
to revive the worlds third largest economy. But failed
it has.
Gross domestic product, preliminary data for which
will be released on November 16, is expected to have
contracted at annualised rate of 0.2 percent in the third
quarter, following a decline of 1.2 percent in the
second. Such a result would mean that Japan has
entered what is known as a technical recessiontwo
consecutive quarters of negative growth.
The contraction is being driven by the slowdown in
Chinawhere growth is at its lowest point since the
global financial crisis of 20082009and its associated
effects, including falling growth in emerging market
economies and weakness in capital spending in Japan.
Amid great fanfare, Japans central bank governor
Haruhiko Kuroda launched the quantitative easing
program in April 2013, promising to double the
countrys monetary base, end the grip of deflation and
kick-start its stagnant economy. However, some two
and half years on, deflationary pressures show no sign
of abating.
At last Fridays meeting, the BoJ extended the date
of its commitment to return inflation to the target range
of 2 percent by six months, to March 2017.
Government data, also released on Friday, showed that
core consumer prices, excluding food, contracted by
0.1 percent in September from a year ago. Other figures
showed that household spending fell in September by
1.3 percent, compared to the same month a year ago.
Consumption levels in Japan are now lower than they
were in 2012.
Not only have the BoJs monetary policies failed, the
outlook is clearly worsening.

According to Kiichi Murashima, chief economist at


Citigroup in Japan: The BoJs monetary
accommodation over the past two and a half years has
only had a limited impact on Japans growth and
inflation.
Policymakers had expected a much larger impact on
the economy. And the deterioration in the global
economic outlook, including developments in China,
will make Japanese companies more cautious about
expanding business investment and raising wages.
At a press conference following the BoJ meeting,
Kuroda tried to maintain an upbeat tone, saying that the
delay in reaching the inflation target was mainly due
to falling oil prices and that the basic trend of prices
is steadily improving. It is doubtful whether his words
cut much ice.
Kuroda left open the possibility for further
quantitative easing measures, saying that there was no
limit to the BoJs policy options.
The chief market economist at Mizuho Securities,
Yasunari Ueno, was among those not impressed. The
central banks decision to maintain its existing policy,
he said, threatens a loss of credibility among overseas
investors about the banks conduct of policy and
exposes it to doubts that the 2 percent inflation target is
now just empty words. Despite the regime change
in monetary policy instigated by Kuroda, he may now
be fairly criticised for the same failings that dogged his
predecessor.
The growing concerns in business circles about the
Japanese economy and its future prospects were
outlined in a Financial Times interview with Sadayuki
Sakakibabra, the chairman of the major Keidranen
business group. He said that while so-called
Abenomics had worked well for the past three years,
recent data meant that the country faced a do-or-die
moment.
Business, he said, should help the economy by

World Socialist Web Site

increasing investment and increasing wages, in order to


boost consumption spending. That prospect is hardly
likely under conditions of a slowing Chinese economy.
The significance of the Japanese situation is
underscored when viewed within the context of the
global economy as a whole. The worlds largest
economy, the US, is now experiencing lower growth,
with real gross domestic product increasing by an
annual rate of 1.5 percent in the third quarter, compared
to 3.9 percent in the second.
The second largest, China, has recorded a growth rate
of 6.9 percent, below the level of 8 percent designated
by the Beijing regime as necessary to maintain social
stability, and the third largest, Japan, is on the brink of
recession. Other major economies in the Asian region
are also being hit by the China slowdown, with growth
in both Taiwan and Singapore virtually stagnant in the
third quarter.
While showing a small upturn, the level of output in
the euro zone has still yet to reach that attained before
the global financial crisis.
The impact of the China slowdown is ripping through
wide sections of the global economy. It has resulted in
a five-month-long contraction in the Canadian
economy in the first half of a year, with only small
increases registered in the three months to August. The
Brazilian economy, which is highly dependent on
exports to China, remains in recession.
So-called emerging markets, many of them relying on
the export of one or two commodities, are also being
heavily impacted.
Last week the International Monetary Fund forecast
that economic growth in sub-Saharan Africa would
slow this year to its lowest level since 1999 and only
increase modestly next year.
As the Financial Times noted in a report published
yesterday: Enthusiasts for the Africa Rising story of
rapid growth on the continent have spent much of the
past 15 years strongly denying that the impressive
economic performance was essentially about selling
commodities to China. That confidence is currently
being severely tested. Prospects have darkened
considerably. Growth momentum in much of
sub-Saharan Africa is petering out.
As the various components of the global
economyfrom the major countries through to
emerging marketsexperience stagnation or outright

recession, stock markets continue to climb, boosted by


the flow of ultra-cheap money from the worlds central
banks.
After sharp declines in August and September, world
markets came roaring back in October, with the FTSE
World Index climbing by 7.8 percent, its biggest
monthly gain in four years. This is not an indication of
economic health. Rather, it is the fever chart of
mounting contradictions that portend the eruption of a
major crisis.

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