Japan’s Economy in a Pause But Hopeful at the Turn of the Year

December 29, 2010

The government and Bank of Japan December economic assessments depicted a continuing pause, with weakening exports hitting industrial production and business sentiment turning more cautious.  Mild deflation continues as well.

Among data releases late in December were the following highlights:

  • The November jobless rate of 5.1% was a tenth higher than its level in the previous two months and just 0.2 percentage points less than a year before.
  • Employment, which had posted on-year increases of 0.2% in September and October, was 0.1% lower than in November 2009.
  • The job offers ratio of 0.57 for every employment seeker remains depressed but continues to edge upward from a cyclical low of 0.42 seen last year.
  • The October all-industry index was 0.8% lower than its 3Q average.  This monthly data series compiles output from the supply side.
  • Industrial production, which sank 1.8% last quarter not annualized, was 2.8% lower in October-November than its 3Q mean.
  • Auto production in November was 6.7% smaller than a year earlier.
  • The December Shoko Chukin index of small business sentiment was significantly weaker than the 50 break-even line and 1.4 points less than its value in September.
  • The November customs trade surplus was 55.4% smaller than a year earlier.  On-year export growth of 7.3% in October-November was down from 18.6% in 3Q.  The seasonally adjusted trade surplus as 26.1% narrower in November than October.
  • Construction orders were 5.3% smaller than a year earlier in November.
  • On-year growth in wage earnings trended unfavorably from 0.9% in September to 0.5% in October and minus 0.2% in November.
  • A 1.0% rise in real household spending last month merely offset a 0.9% drop in October and left on-year spending growth at negative 0.4%.  Real disposable incomes were only 0.5% higher than a year earlier.
  • Retail sales in November were 1.3% greater than a year earlier, but sales growth of 0.6% in October-November was down from 3.2% in 3Q10.
  • Large-store retail sales grew just 0.2% between November 2009 and November 2010.
  • Corporate service prices fell 1.1% in the year to November.
  • Seasonally adjusted consumer prices edged up 0.1% in November, but the non-energy, non-seasonal food CPI slid 0.2% on month and 0.9% on year.  In Tokyo, seasonally adjusted consumer prices in December posted a 0.5% month-on-month drop.

The government’s assessment released today identified some silver linings, suggesting that the economy’s recent lull may break up soon.  Most encouraging is projected industrial production growth in December of 3.4%, which would trim the fourth-quarter decline to 1.6%.  A further  increase in January of 3.7% is also predicted.  These forecasts are based on surveys taken by the Ministry of Economy, Trade, and Industry.  Another bright spot can be found in early-December trade data showing a 16.1% on-year advance in nominal exports over the first ten days of the month.  Imports, by comparison, advanced 13.4%.  Also, the aforementioned index of small business sentiment in December of 45.9 was a tenth higher than in November, suggesting that its downtrend may be bottoming.

Officials know better than to get over-complacent about Japanese economic prospects.  Real GDP expanded only 0.9% per annum on balance during the twenty years between 3Q90 and 3Q10 despite 27 quarters, including the last four, in which annualized growth was 3.0% or higher.  Needless to say, hopes have been dashed several times before.  One potentially specific threat is posed by the strong yen, which on average was 3.4% higher against the dollar this quarter than in 3Q10.  The yield on ten-year JGB’s is presently 1.17% compared to 0.94% at the end of the third quarter.  Japanese prospects remain very dependent on solid Asian growth and a competitive yen to empower companies with the wherewithal to exploit strong regional demand.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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