Monday, August 30, 2004

Japan is now slowing noticeably, and it is clear for all to see that external demand is still the country's lifeblood. How much debt are the Japanese willing to let the US accumulate? Or more importantly, when will transnational financial capital decide it is ready to bet against the Bank of Japan and start attacking the US dollar?
Japan's unemployment rate jumped unexpectedly in July while prices and consumer spending continued to decline, raising a note of doubt on the strength of the economic recovery here.

Japan's unemployment rate rose for the first time this year, jumping to 4.9 percent for July from 4.6 percent for June. Economists had expected the rate to remain unchanged. Spending by households of salaried workers fell 2.5 percent in July from a month earlier, the third consecutive monthly decline.

"These numbers were generally on the weak side of expectations, so it does raise the question of whether economic growth was as strong as the market would portray," said Ryo Hino, an economist for J. P. Morgan in Tokyo.

A report earlier this month showed that Japan's economy grew at an unexpectedly weak annual rate of 1.7 percent in the second quarter, sharply slowing from 6.6 percent in the first quarter and 7.4 percent in the last quarter of 2003.

Still, Mr. Hino and other economists cautioned against reading too much into Friday's figures because other recent data, in particular strong exports and corporate profits, suggest Japan's recovery remains intact even if growth has backed off the torrid pace seen earlier this year.
This last paragraph makes me laugh. Sure exports are strong, but only because consumption in the US and China is still (relatively) robust. And sure corporate profits are strong, for exactly the same reason. The fact is that Japan is still utterly dependent on the production and consumption engines of the global economy with barely a whit of interal self-sustaining oomph to drive it.

Stephen Roach covers these highlights in his commentary today. He notes that
our Japan team now believes that real GDP growth is tracking at about a 2% annual rate in the current quarter -- consistent with sluggish gains in the spring period but far from the imminent rebound widely expected and quite consistent with our below-consensus 1.3% GDP forecast for 2005.
The global recovery has come and gone, kids. Back to more of 2002 and early 2003 where you can't tell the difference between recession and recovery.

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