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Nikkei on the upcoming Economy Watchers Survey and government stimulus

A bit of an odd article came out of the Nikkei this morning, with the title Rise In Econ Watchers Confidence Could Boost Stocks. The Economy Watchers Survey is released each month by the Cabinet Office, and gauges sentiment amongst service industry workers close to the “front line” in various sectors. The survey itself has taken a beating this year, and last month slid for the fourth month in a row to its lowest levels since late 2001.

Because the EWS is an index and is not measured year-on-year, there are bound to be occasional surprising results, such as when the survey reported a slight uptick in March of this year. Still, the main score has been below the boom-or-bust level of 50 for 15 consecutive months, and with a score of 29.5 registered in June, it’s difficult to imagine anything too much higher than 30 showing up in the July reading.

Speaking of the July reading, it’s not due to be published for another five days, so why the speculation? Here’s what the Nikkei had to say:

The Economy Watchers Survey for August may serve to lift stocks if the latest data, to be published Monday, shows an improvement in the diffusion index for economic conditions.

Perhaps, though many other factors would be at work, and this doesn’t show slam-dunk causality. But what if the survey shows a decline yet again?

But if the gauge marks the fifth consecutive month of decline, calls for government action to stimulate the economy will likely mount.

Ahh. That might be the real message. The last week of July was washed out with rain, which most likely dissuaded consumers from doing a lot of shopping - and 25% of Japan’s department store sales happen in the Tokyo area. Although household spending fell by just 0.5% in July, this July was fighting against one of the stronger months from 2007. Given that the Economy Watchers survey is done from the 25th to the end of each month, right in the middle of all that rain, I don’t see sunshine coming from next week’s figures.

And yes, I’m buying the weather excuse this time.

Japan’s exports up 8.1% in July; China imports more from Japan than the US for the first time since WW2

According to data released today by the Ministry of Finance, Japan’s trade surplus shrank by 87% in July, to 91.1 billion yen, as slower exports of cars, auto parts and electronics led to a 19.0% fall in Japan’s trade surplus with the United States. The overall trade surplus has now fallen for five straight months, while the surplus with the United States fell for the eleventh consecutive month.

During July, the value of imports jumped 18.2% to 7.54 trillion yen, while exports rose 8.1% to 7.63 trillion yen. Aside from the US market, exports to Asia increased 12.7%, exports to the EU area increased 4.1%, exports to Russia were up 45.8%, those to the Middle East were up 27.5% and exports to Australia increased 32.8%. Read more

Japan’s GDP drops an annualized 2.4% in the second quarter

Just three months ago, the Cabinet Office announced that Japan’s first quarter GDP has jumped a surprising 3.3% in annualized terms. No one expected a repeat of such rosy figures in the second quarter, and the 2.4% annualized contraction reported yesterday by the Cabinet Office was about what most observers had expected.

The bad news resounds: Exports fell by 2.3% in the second quarter, declining for the first time in three years. Imports fell 2.8 percent. Consumer spending was down 0.5%, while capital spending slipped 0.2 percent.

Looking through today’s headlines, it’s difficult to find good news: Cell phone sales have dropped through the floor - though this is a cause of an ill-explained change in the way mobile phones are sold in Japan, and should lead to sales increases next year. In the second quarter, sales at DoCoMo fell 21%, AU saw a 19% fall and Softbank’s sales slid 23%. As the Nikkei puts it: Read more

Fukuda’s new cabinet under economic fire from all sides

With a brand-spanking new Cabinet that is supposed to take economic issues by the horns, it’s not a good sign that the Cabinet Office seems set to drop the word ‘recovery’ from its upcoming August economic report, though that move has been anticipated. Has the economy peaked? According to the Nikkei, “Even if Japan has fallen into a recession, the Cabinet Office would need at least a year or so to collect enough data to officially determine when the economy peaked.” Still, some optimism is seen in the fact that inventories are low and demand from developing nations could hopefully lessen the damage caused by a serious downturn in US import spending.

As Prime Minister Yasuo Fukuda has directed new Economic and Fiscal Policy Minister Kaoru Yosano to come up with new ideas to boost the economy, the government itself still faces the stiff challenge of winning over public sentiment to any plan involving a hike in consumption taxes - a path which Yosano clearly favors. Back in October of last year, we reported that the Ministry of Finance had hired its first employee ever through a public appointment process. Yoshio Masuda, a 48 year-old who served with Dentsu for about ten years, was hired for a two year stint as the ministry’s Director of Public Relations Planning and Coordination, a position believed to be involved with helping the ministry communicate its decisions better to the public. Read more

Is Japan really headed for recession?

This is obviously a huge question right now. I have held that Japan might experience slow GDP growth, and perhaps another negative quarter or two over the coming year, but using the traditional definition of two negative quarters in a row - I have found that result difficult to believe so far. Stock market drops and yield curves, combined with Japan’s unemployment rates seem to make a recession (according to the traditional definition) a difficult position to project with full certainty. Nonetheless, leading economic indicators are not positive, and that certainly leaves the door open to speculation.

Edward Hugh has a very convincing argument that recession might hit Japan, and his analysis is based upon data showing sluggish exports, which absolutely might impact Japan’s GDP in a negative direction. Mr Hugh’s thoughts are very much worth a read at this point in time. I agree that sluggish consumer spending is going to hurt Japan for some time to come, but will these declines in exports hold up? Will Japan be hit with negative GDP growth for two consecutive quarters? Only time will tell.

Gift certificates, gas coupons, expensive school lunches and reduced houshold spending

A few stories concerning consumer spending and behavior caught my eye today. First, the Japan Times tells us that an increasing number of shoppers are buying discount gift certificates for themselves, in order to cut down on food and clothing costs. According to the paper, gift certificates can be usually be bought for as much as a 2% discount on their face value, though department store gift certificates are selling at shops in Shimbashi for as much as a 5% discount.

Then, we hear from the Nikkei that supermarket giant Ito Yokado plans to hand out gasoline coupons starting tomorrow. The campaign will last until next Monday, and each shopper who spends over 5,000 yen will receive a coupon good for 10 yen off per liter of gas, up to 50 liters. Each customer is limited to two coupons. Read more

March consumer price index up 1.2% - is a pull out of deflation coming at the wrong time for the wrong reasons?

On Friday, the Statistics Bureau announced that Japan’s core consumer prices had risen 1.2% in March compared to a year earlier. This follows a1.0% rise in February and successive 0.8% rises in December and January. March was sixth consecutive month that core consumer prices showed an increase, and the 1.2% increase was the largest seen since a 1.8% jump back in March 1998.

What was different about March figures, however, was that when fresh food and energy costs were stripped from the index, consumer prices saw a rise of 0.1% - the first rise in this figure seen since 1998. Before we go any further, let’s take a look at all four consumer price measurement yardsticks and how they each fared in March:

• March general nationwide consumer price index: +1.2%
• March general nationwide consumer price index (excluding rent): +1.3%
• March January nationwide core CPI (excluding fresh food): +1.2%
• March January nationwide consumer price index (excluding fresh food and energy): +0.1%

Immediately after the numbers were released, Economic and Fiscal Policy Minister Hiroko Ota told reporters: Read more

Which Japanese firms are most at risk in a US downturn?

Earlier this week, Nikkei Veritas published it’s list of the 20 Japanese firms that depend most heavily on the North American market for their operating profit. Of course, high dependence on the US market is not necessarily connected with suffering negative effects due to a US downturn, though it is certainly one risk factor.

Upon seeing the headline, the name Honda jumped into my mind. I thought too soon: Honda ranked #5 on the list, with 42.9% of it’s operating profit and 41.2% of sales being dependent on North America (Honda does lead in the sales category). The real #1 was a bit of a surprise. Read more

Hillary Clinton’s Wall Street Journal Interview: Does she Really Fear a “Japan-Style Malaise” in the US?

Hillary Clinton undoubtedly raised some eyebrows with comments that appeared in Thursday’s Wall Street Journal (in the Friday edition of the Wall Street Journal Asia). During an interview last Wednesday with the paper, Clinton asserted that the US government should be prepared to assume sour mortgages from the balance sheets of investors and lenders, in an effort to spur economic recovery.

What caught my attention was the Senator/Candidate’s fleeting use of Japan’s “lost decade” as a warning for the US financial system, which was mentioned in only the first and third paragraphs of a 19 paragraph article entitled, “Clinton Fears Japan-Style Malaise.” After the third paragraph, however, it became obvious that Clinton was not making any serious comparison to the situation faced by Japan in the years after the bubble burst.

At any rate, here’s the actual quote:

We might be drifting into a Japanese-like situation. I don’t think we can work our way out of the problems we’re in in the broad-based economy with monetary policy alone. I think the Japanese tried that and tried and tried that.

Is Clinton implying that Japan attempted to deal with it’s troubles solely with adjustments to its monetary policy? Is she simply forgetting about Japan’s pump-priming spending on public works, the lowering of Japan’s top income tax rates, and the fact that overly strict laws regarding the capital necessary to start a business - and thus drive emergent entrepreneurship - were left in place until one Mr Koizumi came along?

Clinton might respond by saying Japan’s monetary policy was worth mentioning due to the blunders made in the early years and the extreme nature of the zero interest rate policy which ended not even two years ago. She might point to the fact that banking reform in Japan was very slow to come, and that this was behind a fair portion of the lingering malaise.

All would be fair points, but we doubt that Senator Clinton is willing to go much further on the spurious link between Japan fifteen years ago and the US today. A few weeks ago we laid out our position as to why attempts in the media to link the two events were simply untenable, constituting lazy journalism at best, and scaremongering at worst.

It’s worth pointing out, however, that on the day after Clinton’s interview appeared in the Wall Street Journal, James Pethokoukis of US News and World Report finished his commentary with a very interesting parallel between Clinton and deflationary-era Japan:

Let’s be clear: An economic downturn caused by a banking and real estate crisis in Japan was exacerbated by higher taxes, higher regulation, and protectionism. And keep in mind that Clinton has been calling for higher taxes, more regulation, and a timeout from trade. Something to ponder.

This is well put, and thrusts some of the potential risks for the US into focus. However, there is much grey area left unsaid and we feel that there is still no real connection between the two events; the context behind both and the cocoons from which both emerged were too different for one to serve as a blueprint for the other.

Besides, Senator Clinton won’t become President.

February Consumer Confidence down to nearly five year lows

On Wednesday, the Cabinet Office released it’s Consumer Confidence Index data for February 2008, and we continue to see a downward trend in the figures. After January’s score tumbled to 37.5, February’s index showed a further fall to 36.1 points.

The Consumer Confidence Index generates five scores, each of which is considered positive when above 50, and pessimistic when below the 50 mark. Here’s a breakdown for February’s figures, with the change from last month:

• Consumer Confidence Index: 36.1 (-1.4)
• Overall Livelihood: 33.7 (-1.4)
• Income Growth: 38.9 (–0.5)
• Employment: 37.0 (-1.6)
• Willingness to buy durable goods: 34.8 (-1.9)

The first thing to note is that all five scores dropped in February. This last happened in December of 2007, as January 2008 had seen a rise in the “Overall Livelihood” category. In February, the “Overall Livelihood” score fell to its lowest level ever. Ever.

We think it’s worth taking a look at February 2008 data when compared to February 2007: Read more

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