Japan’s economy may have weathered the storm

According to a press release on Tuesday, faster-than-predicted growth in the last quarter of 2009 means that it is almost certain Japan will not face another recessionary dip.

A government representative of the ministry of finance, Naoto Kan, said that Japan had “shown encouraging signs of a mini-recovery” after the world’s second largest economy suffered its worst slump since World War Two. “We seem to be avoiding a secondary dip,” he said.

The upswing is mostly down to increased domestic demands and a significant improvement in exports, a factor on which Japan is hugely dependent. These two recoveries led to a gain in the nations GDP by over 1 percent compared to the previous quarter, or nearly 5 percent annualized.

The exact dimensions of the recovery are still a concern for Mr. Kan however, and he commented that tax jumps may be needed to stabilize the economy further.

“The economies of other countries affects us enormously due to our reliance on international trade, also there is a drop in employment we need to consider. As such, we need to stay cautious, there are still risks,” he said.

The government have been injecting large amounts of stimulus into the economy and most observers believe that growth could taper off sharply once the effects of those policy actions dissipate.

“It’s difficult to try and predict what will happen in the second half of this year as there has been so much intervention by the government,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management.

“They are unlikely to spur domestic demand as they already have their hands full keeping their own policies in check,” he added.

With net exports contributing to 1 percentage point of the GDP expansion in the fourth quarter, Japan’s heavy reliance on exports for economic growth was further highlighted.

Japanese stocks seem to have been relatively unaffected by the recent news, having only started trading again since China’s own fiscal action last month. The Nikkei index finished with a surprising 0.9 percent dip.

It’s widely viewed that the nation’s new government will take a hard look at how the finance ministry interpret these kinds of financial reports and want to find ways of measuring the country’s economic health more easily.

As it is, the recent data offered some relief from the gloomy global news emanating from abroad, and confirmed that Japan is second only to the United States in the world economy rankings.

Japan’s central bank intervenes to kick start economy

Following an emergency meeting on Friday, The Bank of Japan (BOJ) has revealed they will take action to boost the flagging economy and attempt to stem rising deflation.

The BOJ have promised an injection of over $100 billion into the economy by way of budget short-term loans to the nation’s banks.

They hope by doing this that banks will be more likely to increase corporate and private lending, but financial specialists are pondering whether this may simply be an empty political move rather than a genuine effort to prop up the world’s second largest economy.

“The general feeling is that the government have been prodding the BOJ to do something,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management in his monthly newsletter to clients.

“The central bank’s position on financial issues hasn’t changed recently, so they certainly wouldn’t be doing this independently,” Lane added.

In an announcement following the meeting, the BOJ said the move would “act as a counterbalance and assist the economy back to growth.”

There seems to be no end to the government’s plans to kick start Japan’s economy, with further stimulus packages being prepared, totalling around 3 trillion yen, according to BBC reports.

Ten months ago, the outgoing administration spent nearly 16 trillion yen to stimulate the economy, which successfully diverted the nation away from recession.

Another sign that the recent move was more for political drama than anything else was the meagre amount of the package. Director at Mizuho International, Seijiro Takeshita, described the amount of extra funds as “negligible” and it was all about “political timing”.

Takeshita commented that there were far better ways for the BOJ to help the economy grow such as bringing down the borrowing interest levels or purchasing high yield bonds from the government.

However, Takeshita also said the move is a sign that the government is taking the financial crisis and Japan’s own decent into recession far more seriously than before.

It was a widely held view that the country would remain largely unscathed by the global downturn, but it is clearly now feeling a part of the pain the rest of the world community has gone through in the last two years.

Exports bring Japan out of the darkness

A 6.4 percent increase in exports has dragged Japan out of its most serious recession since WW2.

It is the nation’s first quarter of economic growth for over 12 months and GDP saw an annualized rise of 3.8 percent and a 1 percent rise compared to the previous quarter.

It is the first gain in exports figures since the beginning of 2008 and the largest gain since Q2 of 2002.

The news follows encouraging signs in Europe as the two dominant economies in the financial bloc, France and Germany, reported their first positive growth in the current quarter.

Many experts thought Japan would take years to recover from a dip brought on by plummeting foreign demand for its major exports, something Japan heavily relies on for economic success and the factor that has made Japan the number two ranked economy in the world.

The cautious optimism is being mirrored in other regions.

Contraction in the United States has been the smallest for 12 months at only 1 percent annualized last quarter. A 0.1 percent contraction was Europe’s most encouraging result for a year also. China’s growth, albeit assisted by a massive stimulus package
somewhere in the region of half a trillion dollars, jumped nearly 8 percent from last year.

Although the promises of the nation’s Prime Minister, Taro Aso, that their own economy would be the first to come out of the darkness seem to have been born out, it is thought by onlookers in the know that the recent recovery won’t be enough to keep him in the job following the next general election in 2 weeks’ time.

“The Lib Dems won’t survive,” says Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management. “Aso will be feeling good at the moment though. His stimulus package plan was mocked at the time but it has worked, and his cash hand outs and the incentives for green energy have provided the economy with many short term boosts. He is to be commended.”

Not everyone has such a positive outlook. The modest export-focused growth is great news, but the yearlong contraction that translated to over a 13 percent dip in annualized GDP in the last quarter of the year was a huge blow to the nation’s prospects.

The economic and fiscal policy minister, Yoshimasa Hayashi warned that a sustained recovery was not certain. “Employment figures are still poor and our production levels are in a trough,” he said. “We will need to work very hard to keep this recovery going and must be aware of the negative risks.”

Global meltdown has barely affected Japan

While London and Wall Street seems to be imploding in the current financial crisis, Japan looks to have been left relatively unscathed.

Japan has often been thought of as a somewhat isolated economy, sometimes being a negative characteristic for the world’s second largest economy, but the stark difference between the nation and the western world has never been more obvious than in this current financial storm, probably the worst since the Great Depression of the 30’s.

It seems like business as usual for Japan’s banking titans, who are looking on with a disconnected impassioned view while huge banking conglomerates in the United States and Europe teeter on the brink of destruction.

The looming credit crunch has not hit Japan yet, and possibly won’t at all with the country’s issue usually being the banks possessing too much cash rather than too little. The Bank of Japan, the county’s central bank, is unlikely to be mimicking the Federal Reserve with its huge bailouts of top institutions.

Indeed, the latest economic catastrophe is barely even making the news in Japan. There are far more pressing events taking up airtime than “Lehman Shock”, as it’s known here, such as a tainted rice scandal and an incoming typhoon weather system.

In Japanese political circles, where there is a race for a new PM coming up, the financial crisis is not high on the list of talking points.

This is not to say that Tokyo will be completely unaffected by the current troubles, far from it. The country will no doubt be threatened, at least, by a coming economic depression considering the nation is heavily reliant on its exports. Its stock market has also fluctuated and dropped this week.

However, Japan has so far escaped the turmoil that has gripped the rest of the world’s markets.

“The global downturn is viewed by the Japanese as an earthquake in a distant land, with only a ripple effect being felt here,” says Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management who manages over $5 billion of funds in the region.

“I’m not feeling the distress and anguish here that I observe happening over in the States or Europe,” Lane added.

Japan’s avoidance of the problems afflicting the rest of the world might be due to their wise handling of their debt in the 90’s. They seem to have lessened the build-up of subprime loans; a very risky key factor that most analysts agree has ignited the current crisis.