Japan economy shrinks

11/15/2012
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Japan’s economic situation fails to improve. A year-on-year drop of 3.5% in the gross domestic product (GDP) is causing a headache for Prime Minister Yoshihiko Noda’s government. Though there are possible partial solutions, many of Japan’s woes are outside the control of the government and the fiscal authorities.

TOKYO (majirox news) — Japan’s economy contracted 3.5% in the gross domestic product (GDP) from a year earlier. It is bad news for the country and the government. Prime Minister Yoshihiko Noda, who is already under heavy pressure, will find that pressure increasing as election time draws nearer. According to the Cabinet Office, slumping exports and a drop in consumer spending are the reasons for this fall.

“The economy has been in a recession since the middle of the year as exports peaked out and cars sales, domestic car sales, have started to decline” said Hiromichi Shirakawa, senior economist for Credit Suisse in Tokyo. “And we believe that there will be another negative GDP gross for the October to December quarter.”

Capital spending fell, and exports dropped to the United States, Europe and Asia. Trade with China was especially hard-hit, following the Chinese government’s purchase of the disputed Senkaku Islands from the previous private Japanese owners.

“Japan needs to do a deregulation, opening the markets, increasing immigrants, so I tend to think that Japan has to do more on the surprise side of related measures — not a demand stimulus, no fiscal stimulus, no money printing,” Shirakawa said. “Japan has to deregulate and privatize the economy.”

Noda said the GDP figures were “grim” and has called for a “sense of urgency” in the national economic policy. Stimulus measures are the preferred way of kicking a sluggish economy into life. However, with the fall in consumer spending, the planned consumption tax rises in the coming years may be postponed, meaning less income for the government.

Hiro Watanabe said, “For business owners like me there are three things that are bad: The corporate tax is too high and the government tax regulations are too strict and detailed which takes too much time. The social security rate is also too high for corporations.”

With China’s imports from Japan in October having slipped by over 10% from the corresponding period 12 months previously, desperate measures may be called for. The central Bank of Japan may implement additional quantitative easing measures – basically printing money — to improve liquidity in December. However, some analysts say that this is not enough, and a drastic budget plan may be needed.

Kenji Tankaka said, “They need to take desperate measures soon. I work in the manufacturing sector and my salary is not increasing and I don’t receive any bonuses.”

Some say that the unspent funds allocated for the relief of the stricken Tohoku area, amounting to billions of dollars, should be used on humanitarian grounds, and as a way of stimulating the relevant industries. Whatever method is selected, firm action will be needed to inject life into the Japanese economy.

With the political situation currently fluid, the next government is unlikely to hold an absolute majority and policy, including fiscal and economic policy, is likely to be a compromise, rather than of deeply held convictions.

It is possible that the tensions of the China dispute will settle down, but without clear signs of recovery from the US and Europe, Japan’s exports and its base will remain weak.

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