The Coivd-19 pandemic has highlighted many of the issues we have been noting in Japan in its “lost decade” period which now of course has run for decades. The most recent has been a growing list of countries recording low birth rates which reminds us of Japan and its issues with that an consequently demographics. Next comes the increasing use of QE ( Quantitative Easing) bond buying around the world which echoes the behaviour of the Bank of Japan.That leads into increased public-sector borrowing and high levels of public-sector debt where Japan is something of a leader of the pack. For the more thoughtful there is also something which was true even pre pandemic which is that economic growth was catching a bit of the Vapors even before Coivid-19 hit.
I’m turning Japanese, I think I’m turning Japanese, I really think so
Turning Japanese, I think I’m turning Japanese, I really think so
That is an issue once the pandemic is over as we wait to see if the developed world continues to find economic growth hard to find. But for the moment let me point out another feature of Japanese life which is a contradiction to stereotypes but is so often true.
Hospitals in Japan’s second largest city of Osaka are buckling under a huge wave of new coronavirus infections, running out of beds and ventilators as exhausted doctors warn of a “system collapse”, and advise against holding the Olympics this summer. ( Reuters)
Mask wearing was not unusual when I worked out there in the 1990s so you might think they were equipped to keep things relatively under control. But as the vaccine scheme shows it has not worked out like that.
Japan opened large-scale vaccination facilities on Monday morning in Tokyo and Osaka Prefecture. Officials say they aim to inoculate Japan’s 36 million seniors by the end of July. ( NHK)
That all seems rather tardy especially for a country planning to host an Olympics in a couple of months as NHK goes on to point out.
A woman said she felt like she has had to wait a long time to get her vaccination compared to other countries, and they could have started earlier.
Also even the new effort looks to leave them short of the target above.
The Tokyo facility will administer 5,000 shots a day, while the one in Osaka will give out 2,500. The government says it hopes to double their combined capacity in the future.
Sop rather like with the nuclear power programme Japan trips up when you think it should be in an area of strength.
The Economy
Last week we were told this via Japan Today.
TOKYO Japan’s economy contracted 1.3 percent in the three months to March after the government reimposed virus restrictions in major cities as infections surged, data showed Tuesday.
We can use this to look back.
Japan’s economy registered its first annual contraction since 2009 last year, reeling from the effects of the pandemic despite experiencing a smaller outbreak than many countries.
Revised figures released Tuesday showed the annual contraction was marginally better than initially estimated, at -4.7 percent, from the earlier -4.8 percent figure.
Regular readers will be aware that the 2020 fall came on the back of an economy that was already struggling because of the latest rise in the Consumption Tax.
Unlike many other places Japan may well be turning lower again this quarter.
Economists warn that the slowdown is likely to continue, with the government forced to impose a third state of emergency in several parts of the country — including economic engines Tokyo and Osaka — earlier this month.
The emergency measures are tougher than in the past, and have been extended to the end of May and expanded to several other regions in recent days.
Thus domestic demand may see its largest pandemic hit so far. There is also the debate over the Olympics which is already a year late. Will it happen? Due to the concept of face I expect Japan to do everything it can to hold it but if it cannot a lot of spending has been wasted. Then for a manufacturing economy there is this too.
Oshikubo also noted that a global semiconductor shortage caused by surging demand for chips used in personal electronic devices and modern vehicles remains a risk.
“We expect choppy waters ahead for manufacturing in the next quarter,” he warned.
Business Surveys
The IHS Markit survey on Friday was not optimistic.
Flash PMI data indicated that activity at Japanese private sector businesses saw a renewed reduction in May. Output fell at the quickest pace for four months, while the contraction in new business inflows was the fastest since February.
There was growth in manufacturing ( 53.1) but the decline in services ( 45.7) pulled the overall economy into decline. This leaves the Bank of Japan in a bit of a cleft stick because only a few days ago Governor Kuroda told us this.
Thereafter, as the impact of COVID-19 subsides, it is projected to continue growing. After having registered a significant negative figure of minus 4.6 percent for fiscal 2020, the real GDP growth rate is projected to be 4.0 percent for fiscal 2021, 2.4 percent for fiscal 2022, and 1.3 percent for fiscal 2023 in terms of the medians of the Policy Board members’ forecasts in the April 2021 Outlook Report. Compared with the previous Outlook Report released in January, the projected growth rates are higher, mainly for fiscal 2022.
So it has revised things up just as the situation gets worse.
Monetary Policy
In essence the Bank of Japan has set all official interest-rates between -0.1% overnight rate and the 0% target of yield curve control for the Japanese Government Bond market. There has been a modification because during the peal of the crisis YCC was holding bond yields up rather than pushing them down so we now have a range.
The Bank made clear that the range of fluctuations in long-term interest rates, or 10-year JGB yields, would be between around plus and minus 0.25 percent from the target level, which is set at “around zero percent.”
That was quite a defeat for the central planning philosophy because if you spend some 536,666,804,633,000 Yen on something you are planning to raise the price rather than reduce it.
Moving onto equity buying the official view is this.
The third policy action concerns ETF and J-REIT purchases. These purchases aim at exerting positive effects on economic activity and prices by lowering risk premia in the markets
If so what is going to do now the Nikkei-225 index is at these levels as today it closed at 28.364? What will be done with the 36 trillion Yen that has already been bought?
Comment
There are tow numbers which we can use to look at Japan and the first is inflation where policy is for example to raise mobile phone costs.
Compared with the previous report, the projected rate of increase in the CPI for fiscal 2021 is lower due to the effects of the reduction in mobile phone charges.( Governor Kuroda)
The aim to increase inflation to 2% per annum is never explained apart from being an international standard and has been widely ignored in Japan as inflation has been dormant during the lost decade period.
There is a counterpoint which is that Bank of Japan policy switched via QE ( now called QQE) to boosting asset prices such as equities and bonds. The latter helps oil the wheels of all the debt.
Japanese government debt rose ¥101.92 trillion ($940 billion) in fiscal 2020 to a record ¥1.2 quadrillion, showing the largest annual increase as a result of the fiscal response to the coronavirus pandemic, according to the Finance Ministry.
Marking a record high for the fifth straight year, the outstanding balance as of March 31 means that debt per capita stood at ¥9.70 million based on the estimated population of 125.41 million on April 1. ( Japan Today)
The debt burden is not one of increased interest costs as the Bank of Japan has seen to that. But the total which according to the IMF will be 256.5% of GDP this year is an issue when we note that the population and in particular the working age population is declining. Also there are areas where it plans to spend more.
Japan to end its 1% GDP cap on defence spending – “must increase our defense capabilities at a radically different pace” ( ForexLive )
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