Japan Economic Scorecard

September 9, 2008

The dive in Japanese real GDP in the second quarter appears worse than even the preliminary indication of -2.4% at a seasonally adjusted annual rate.  Revised figures at the end of this week are expected to show a drop of closer to 3.5% because the Finance Ministry’s quarterly business survey found investment spending to have been weaker than assumed.  The first estimate of 2Q growth revealed declines in every component of final demand: -1.9% saar in private consumption, -15% in residential investment, -0.9% in non-residential investment, -3.0% in government spending, -8.9% in exports and -10.7% in imports.

In contrast to 2Q, July data frequently showed greater strength than forecast.  Unemployment was at 4.0%, not 4.1%.  Industrial output did not drop but instead rose 0.9%.  Housing starts increased 19.0% y/y after falling 10.6% in 2Q, and construction orders increased 42.3% following an on-year 15.1% decline in 2Q.  The Cabinet Office’s private consumption index swung into the black at +0.4 from -0.1 in June and -0.4 in May.  Real household spending advanced 0.9% m/m on top of a monthly increase of 1.5% in June, and the PMI index climbed half a point to 47.0.  On a cautionary note, wages grew only 0.3%, their smallest monthly gain this year, employment posted another big on-year drop of 0.8%, and the job offers ratio slid below 0.90 for the first time since September 2004.

August data are spotty and inconclusive.  The Economy Watchers’ index fell a whole point to an 82-month low of 28.3, but the Shoko Chukin index rebounded to 41.4 from 39.3 instead of dipping slightly further as anticipated.

The Nikkei-225 equity index has lost 9.8% since midyear, 20.6% since the end of 2007, and 29.2% since August 8, 2007 when the global credit crisis began.  Against a reinvigorated dollar, the yen has managed a 0.9% uptick since midyear, and it has gained 4.2% since end-2007 and 12.0% since financial turbulence began.  The yen has also jumped 10.7% against the euro since the middle of this year.  Whereas movements in EUR/USD generally reflect swings in sentiment toward the dollar and perceptions about the relative strengths of the U.S. and European economies, the yen acts more as a barometer of global risk aversion.

Japanese Prime Minister Fukuda has resigned after less than a year in office.  His successor, to be decided in a Liberal Democratic Party parliamentary vote on September 22nd, is expected to be Taro Aso, the Party’s Secretary General and a former foreign minister who favors a looser fiscal policy and a nationalistic stance in international relations.  Monetary policy is locked in low gear.  The overnight money target has been at 0.5% since February 2007 and is likely to remain at that level until late 2009.



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