Japan out for the Count
Doom! Japan’s annualized gross domestic product (GDP) growth was -6.3% this year, pre-coronavirus, and twice as bad as consensus (-3.8%). The nation is one red print away from confirming a technical recession next quarter, but the Invstr community doesn’t need it technically confirmed.
After hiking consumption tax, the country suffered a 7.8% decrease in consumer spending, and business investment also fell. Last fall’s Typhoon Hagibis took parts of the economy offline, too, and four hundred ‘Covid-2019’ cases speak of a wider Pacific region in disarray.
From a policy perspective, these awful digits could be the result of a failed “new economy” experiment with negative interest rates. A key tenet in Abenomics, going sub-zero is meant to force banks not to sit on big deposits and issue loans to anyone game, for almost any reason, at almost any cost.
Theoretically, that’s great for fueling an expansion. However, taking rates so low leaves nothing left to fight a downturn. The Bank of Japan seems to be leaving this economic mess for a government budget and the Tokyo Olympics to try and put right. Come to think of it, won’t the stadiums be half empty?
Investors are using these headlines as possible forward indicators of news in other parts of Asia. Having sat out an entire quarter due to the coronavirus, some bet that Chinese stocks will fall heavily when the superpower delivers its own quarterly GDP growth.
The argument to stay positive on stocks, however, has to do with Japan’s twenty-year tradition of loading up yen printers! Quantitative easing may keep the good times rolling by loosening the money supply and unfreezing businesses and consumers, but it won’t last forever. Won’t it?
Issues of productivity stagnation and an aging population in Japan will eventually need to be confronted. Unless they make more babies or import more foreigners, the country is set to lose a third of its population over the next thirty years, according to its own health ministry. That means fewer consumers for Japanese businesses to serve and ever-tougher conditions for investors. Doom!
