Japanese Economy crashing

[Tender Branson]

TOKYO (AP) — Japan's economy likely contracted at an annual pace of more than 10 percent in the fourth quarter, analysts predict, reflecting the collapse in global demand that is battering the world's second-biggest economy.

The Cabinet Office is expected to reveal Monday that gross domestic product in the October-December period plunged an annualized 11.7 percent, according to a consensus of market forecasts. That would mark the steepest drop for Japan since the oil shock of 1974 and far outpaces declines of 3.8 percent in the U.S. and an estimated 1.2 percent in the euro-zone.

With recovery nowhere in sight, Japan is now in the midst of its worst downturn since World War II, analysts say.



http://www.google.com/hostednews/ap/article/ALeqM5jmfkCQFvxtt6IXRmfAjmFGTya2yAD96AM8K80

[Tender Branson]

BTW: Today, preliminary Q4 GDP numbers for the EU-27 countries have been released by Eurostat as well:

link

[opebo]

That is one export dependent economy! 

[Tender Branson]

That is one export dependent economy! 

That alone can't be the reason for this sharp decline. Germany for example exports almost twice the amount of Japan each year, despite the Japanese economy being larger than the German one by a fourth. In terms of percentage of the GDP, Germany's exports account for 40% of the annual GDP, but Japan's exports only account for 16% of the GDP. Because Germany's economy was only down by 2.1% compared with the previous quarter, I suspect that the internal demand is rapidely slowing down in Japan as well.

[Beet]

Curiously, Bloomberg analysts go with opebo's interpretation, even though I have no idea how the math adds up. According to the analysts,
"Net exports -- the difference between exports and imports -- accounted for 2.3 percentage points of Japan’s contraction last quarter, according to economist forecasts. Domestic demand, which includes household spending and capital investment, probably subtracted 0.9 percentage points from growth, they said."

And it makes intuitive sense. After all, Germany is protected by the euro whereas the yen has skyrocketed.

However, I don't see how this is possible. After doing some research, I have calculated that at most Japan went from a 2.5 trillion yen surplus in the 4th quarter to a 600 billion yen deficit, or about 3.1 trillion yen, or about 12 trillion yen annuals. Whereas it's total GDP is around 550 trillion yen. So to get a fall of 2.3 x 4 = over 9% of GDP, it would have had to accounted for a nearly 50 trillion yen annual difference, not a 12 trillion yen annual difference.

On the other hand you're also not right because December retail sales (presumably the worst month) only fell 2.7 percent from a year earlier.

So what is going on? The answer is that industrial production is collapsing (at something like a 25% annual rate), but I'm not sure why.

Update:
Nevermind, I see my mistake. The 11.7% is an annural rate extrapolated from the quarterly 3.1% fall. It assumes not only the one-time decline of December continued for a year, but that GDP continues to fall by about 3.1% each quarter for a year. So in my math above, it would be the equivalent of Japan's trade balance deteriorating by 3.1 trillion each quarter.

The actual math is much simpler. Japan's quarterly GDP must be between 125 and 150 trillion yen, so a 3.1 trillion yen is just under 3% of this.

The good news is that the puzzle is solved. The bad news is that given that Japan's exports dropped by 35 percent at an annual basis in December, compared to a 23 percent annual basis for the quarter, we can probably expect an even worse GDP figure for the first quarter of this year.

[Tender Branson]

The offical numbers are out and Japan's GDP decreased by 4.6% in the last quarter of 2008, compared with Q4 2007.

The quarterly numbers are as followed:

Q1 2008: +1.5%
Q2 2008: +0.7%
Q3 2008: -0.2%
Q4 2008: -4.6%

In 2008, Japan's GDP decreased by 0.7% compared with 2007, down from 2.4% growth in 2007 and 2.0% in 2006.

http://www.esri.cao.go.jp/en/sna/qe084/maine1.pdf

The comparable numbers for the US:

Q1 2008: +2.5%
Q2 2008: +2.1%
Q3 2008: +0.8%
Q4 2008: -0.2%

In 2008, US GDP increased by 1.3% compared with 2007, down from 2.0% in 2007 and 2.8% in 2006.

http://www.bea.gov/national/xls/gdplev.xls

The comparable numbers for Austria:

Q1 2008: +2.9%
Q2 2008: +2.4%
Q3 2008: +1.5%
Q4 2008: +0.3%

In 2008, Austrian GDP increased by 1.8% compared with 2007, down from 3.1% in 2007 and 3.4% in 2006.

http://www.wifo.ac.at

[2952-0-0]

Looking at the world's economic statistics is like looking at a porn flick.

[Tender Branson]

I have now looked up the official 2008 numbers for the US and Austria:

2008 GDP was

9,695 Trillion € in the US (population: 304,06 Mio.) - GDP/capita: 31.900 €
282,202 Billion € in Austria (population: 8,34 Mio.) - GDP/capita: 33.800 €

In dollar-terms

14,265 Trillion $ in the US (population: 304,06 Mio.) - GDP/capita: 46.900 $
415,215 Billion $ in Austria (population: 8,34 Mio.) - GDP/capita: 49.800 $

[opebo]

Why doesn't Japan just print and distribute massive amounts of Yen if that currency is strengthening so much and demand is down?

[2952-0-0]

Last time that happened, all those newly printed Yen ended up driving up asset prices the world over...

[Southern Senator North Carolina Yankee]

Why doesn't Japan just print and distribute massive amounts of Yen if that currency is strengthening so much and demand is down?

You keep calling for massive amounts of money to be printed. If every country did that at the same time it would be a catastrophe. Currencies are relative to other countries currencies. Until 2008 people feared that the falling Dollar would cause this type of thing in Japan once companies started to flow into the US to take advantage of the currency. How ironic that the dollar has recovered enough to cost us any jobs we would have gained while at the same time the Japanese economy has crashed cause demand has tanked.

[Sam Spade]

The Japanese, as an export-based economy, rely on demand for their cheap products in order to function.  Without demand, they just deflate.  Same with China.

The parasite-host relationship sucks for the parasite when the host is no longer willing to feed it.

[2952-0-0]

The parasite-host relationship sucks for the parasite when the host is no longer willing to feed it.

Does this mean that all hell will break loose when they no longer want to stuff their dollars into T Bills?

[Sam Spade]

The parasite-host relationship sucks for the parasite when the host is no longer willing to feed it.

Does this mean that all hell will break loose when they no longer want to stuff their dollars into T Bills?

Connect the dots. (clap, clap)

Of course, given that Japan is now running an account deficit, their ability to purchase Treasuries in the future will likely be impaired just because of that.

Right now, Bernanke is still able to keep Treasuries low because of a combination of flight from equities in the US (wonder what a good bear market rally would do to that) and flight from other countries' Treasuries (i.e. we think we're screwed much worse than you are). 

I also suspect he is doing some buying out the back end, but no one cares about yet.  Also, speculators still think he's going to buy the long end at some point (they've read his thesis).

Eventually, with all the debt that's going to be out there, along with continued economic breakdown, it will meltdown and we'll get higher interest rates, as a best-case scenario.  You can't do ZIRP forever (as the rest of the world will find out soon too).

There are plenty of really bad scenarios that could occur along with the meltdown and higher interest rates, but no need to panic people now.