Japan’s surprise recession had historical hints

November 17, 2014

Japan woke up this morning with a seven-month-old hangover.

The news that Japan slid into a recession during the third quarter of this year came as a surprise to many, but a closer look shows that historical data may have been helpfully predictive.

Saddled with debt accrued over 20 years of economic downturn, Japan in April increased its consumption tax from 5 percent to 8 percent, a move that echoed a 1997  bump in the consumption tax from 3 percent to 5 percent. At the time analysts saw a number of similarities, while at the same time stressing that a third quarter rebound would be essential for a the move to be successful.

It didn’t happen. As this Reuters graphic shows, wages, household spending and GDP have all been hit harder than after the 1997 tax hike, and as we now know, the third quarter uptick never materialized. Because Japan is the world’s 4th biggest importer of crude oil, prices fell more than a dollar to beneath $78 a barrel and initial reaction pushed the dollar to a seven-year high against the yen. Investors hope an announcement tomorrow from the Bank of Japan will provide more clarity.

Bloomberg’s Joe Weisenthal points out that Abenomics has been good for the markets without much real-world impact—an effect that can be seen in the relative weaknesses of wages and household spending. Nor is the recession necessarily the blow to Prime Minister Shinzo Abe that it might appear. As Reuters’ Leika Kihara and Linda Sieg report, the recession could allow Abe to delay an unpopular sales tax hike and call a snap election two years before he has to go to the polls.

Critics have questioned the very existence of Japan’s “lost economic decades,” but market corrections have consequences, even if they’re only for people and not corporations. Lost wages feel more tangible than a debate over “lost decades.”

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He economic geniuses is this a surprise for you. If go get a real blue collar job or work as a hamburger flipper to find out what real life is all about

Posted by cynical175 | Report as abusive