Monday, October 04, 2004

All along the General has been skeptical of Japanese growth. All the data suggests that it is the US and China, not Japan, that is driving the sudden and welcomed return of economic growth to the Land of the Rising Sun. From today's WSJ (sub. only):
Economic growth in the outside world is expected to slow as oil prices approach new highs. However, a plethora of fresh economic data released Friday may indicate that Japan's economy is still growing and a return to recession seems unlikely -- even though the rate of growth has slowed. The data also indicate that Japan's economic expansion is more lopsided than ever and is coming mainly from just one sector: big export companies. Smaller companies and the Japanese consumer remain on the sidelines. . . .

. . . Because of the still-slow consumer demand, core consumer prices fell 0.2% in August from the previous year. That means Japan still hasn't climbed out of deflation, now in its fifth year. Deflation, or pervasive falling prices, discourages spending and investment and effectively shrinks the economy.

But slow spending also reflects weak wage growth. According to some economists, companies are holding down wages using more part-time workers to offset the rising cost of oil and other raw materials. The move makes Japanese companies more resilient to possible downturns, but also holds down growth in consumers' disposable income. . . .
If the second largest economy in the world (and the country running the second largest trade deficit with the US) is nowhere close to dramatically increasing its imports from the US, what real hope is there of narrowing the US current account deficit?


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