Japan fourth-quarter growth, external balance suffer blow in test for Abenomics

[bananas]

Source: Reuters

Japan's economic recovery suffered a blow at the end of last year and the current account deficit ballooned to a record in January, raising fears of a stumble in the world's third-largest economy as activity wilts ahead of a sales tax increase in April.

In the fourth quarter of last year, Japan's economy grew at an annual rate of just 0.7 percent, revised figures show, slower than the initial estimate of 1.0 percent on weaker business investment and consumption. The slowdown from a revised 0.9 percent pace in the previous three months bolsters expectations that the Bank of Japan may ease monetary policy further in coming months to safeguard a fragile recovery.

In a further negative sign for the export-reliant economy, the current account deficit widened to a record 1.589 trillion yen ($15.38 billion), easily exceeding a median estimate for a 1.4 trillion yen deficit as shipments failed to substantially pick up despite a weaker yen.

The disappointing data join a recent run of soft indicators that have raised doubts about Prime Minister Shinzo Abe's strategy to spark sustainable growth through massive monetary and fiscal stimulus, as well as structural reforms.

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Read more: http://www.reuters.com/article/2014/03/10/us-japan-economy-current-idUSBREA2901320140310

[bananas]

1. From last year: "In Japan, the Sugar High of Abenomics"

• "Whatever others believe Abenomics might mean, it really isn’t about restoring Japan to greatness; instead, it’s geared toward managing the country’s decline."
  
  
• "Abe has said it’s time for the country to return to being a nation-state that can, when appropriate, project military power to safeguard its interests. (Increased defense spending could also be a form of stimulus.)"

http://www.businessweek.com/articles/2013-06-06/in-japan-the-sugar-high-of-abenomics

In Japan, the Sugar High of Abenomics
By Brian Bremner June 06, 2013

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With Abemania spreading, a little perspective is in order. Whatever others believe Abenomics might mean, it really isn’t about restoring Japan to greatness; instead, it’s geared toward managing the country’s decline. Above all, Abe’s reforms must prepare Japan for what’s likely to be a bruising debt workout, a prolonged period of depopulation, and a steady erosion in economic performance well into the middle of this century. The government’s messaging on Abenomics tends to stress the reflationary dimensions of the plan rather than the big long-term challenges that will come later. Just as anywhere else in the world, in Japan talking too candidly about unpleasant economic truths can be political seppuku. “What they are doing right now is playing for time,” says Mikio Mizobata, an economic analyst with the Daiwa Institute of Research, describing Abe and his team. “The economy has improved, and consumer sentiment is looking up, so now is the time to get on with painful reforms.”

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In his 2006 political manifesto, Towards a Beautiful Country, Abe writes admiringly of his grandfather as the inspiration for his conservative views. He also vowed to be a “fighting politician” committed to a diplomatic but assertive Japan. Before Abenomics, he was better known for his hawkish views on China and North Korea and for backing the revision of Article 9 of the Japanese constitution, the basis of Japan’s postwar pacifism. Abe has said it’s time for the country to return to being a nation-state that can, when appropriate, project military power to safeguard its interests. (Increased defense spending could also be a form of stimulus.)

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[DallasNE]

2. Japan Has Demand Issues

So monetary stimulus will have minimal impact. It doesn't state what the fiscal stimulus is but the one item mentioned is a sales tax increase and that is not a stimulus at all because it weakens consumer demand. When you have monetary and fiscal policy at cross purposes they will negate one another and that looks like what is happening in Japan. It is time for Abe to park the dogma and allow the economists to devise a plan that might have a chance of working.