Japan’s growth embarrassingly revised down by 3.5%

A friend Scott caught this article on Bloomberg about the latest economic figures out of Japan:

Japan’s economy expanded less than a third of the pace initially reported in the three months to September as companies slashed spending.

Gross domestic product rose at an annual 1.3 percent pace, slower than the 4.8 percent reported in preliminary figures last month, the Cabinet Office said today in Tokyo. The revision was deeper than the predictions of all but one of the 17 economists surveyed by Bloomberg News.

How do you go from 4.8 percent growth to 1.3 percent.  That’s absurd. This change doesn’t leave one with warm and fuzzy feelings. However, it does point out the fragility of Japanese recovery where housing starts recently came in at a 48-year low and companies are cutting capital spending at a record pace. Edward Hugh sees a double dip as a distinct possibility despite the surging current account surplus. See also Morgan Stanley – Japanese Recovery Losing Steam – December Tankan Preview

What’s the Japanese response? Printing money:

The Bank of Japan plans to pump around ¥10 trillion into the banking systemto rein in deflation and the surging yen. Here are some questions and answers about the ramifications:

Why has the BOJ introduced the measure?

The central bank expects the measure to help the economy overcome deflation, in which price drops lead to deterioration of corporate earnings, job cuts and household income declines. The measure is timed to back up an economic stimulus package now being hammered out by the government.

In a past bout of deflation, the BOJ in 2001 introduced the so-called quantitative easing policy that set a target quantity of liquidity instead of an interest ratetarget adopted for conventional monetary policy.

What are the details?

Through open market operations, the BOJ is providing banks with three-month loans that carry an annual interest rate fixed at the same rate as the BOJ’s policy interest rate of 0.1 percent on overnight interbank loans.

Printing money will not work in isolation. Money printing was tried early in the decade and it worked for a limited period, but eventually its effect dissipated, particularly after fiscal policy normalization. For the second time today I am forced to quote Albert Einstein.

Insanity is doing the same thing over and over again and expecting different results.


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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