The Japanese have a wonderful expression that I will take some liberty in translating. They use it to signify when someone is trying to claim great distinctions among low levels of activity or achievement. The phrase is roughly “A height competition among peanuts.”
Reader DoctoRx flagged this Bloomberg report as a Pangloss item. What is odd is Bloomberg, in theory, is the last place one ought to see this sort of thing, since its serious money still comes from its professional terminals, and those types are not keen about being spun.
Now there is no denying that this change is a big bounce. But it comes after a tremendous plunge, so the overall level of activity is far from robust. And the article attributes the improvement to domestic and foreign fiscal stimulus.
The headline is Japan’s Industrial Production Surges Most in 56 Years . Technically, that is accurate. But the article verges on schizophrenia. You have this first paragrpah:
Japan’s industrial output surged the most in 56 years in April as a rebound in exports helps the economy emerge from its worst recession since World War II.
Yves here. Um, the last GDP report had Japan shrinking at an amazing rate, 15.2% annualized, in a report issued May 19. Now we have a Bloomberg reporter unilaterally declaring the recession over? OK, BOJ governor Shirakawa says the economy will emerge from recession this quarter. But that’s a forecast, not a fact, as the first paragraph suggests. Back to the story:
Production rose 5.2 percent from March, the second monthly gain, the Trade Ministry said today in Tokyo. The increase was faster than the 3.3 percent economists estimated, and companies said they planned to boost output in May and June as well.The yen rose on speculation funds will flow into Japan as the economy resumes growing after last quarter’s record contraction. Still, output is running at two-thirds last year’s levels, saddling manufacturers such as Nikon Corp. with workers they no longer need and driving the jobless rate to a five-year high of 5 percent.
Yves again. The yen’s strength is not favorable for exports, which has been Japan’s driver. And notice the grim reality in the last sentence: even with this increase, output is 66% of last year’s rate. That’s an amazing fall. Yet the most bullish analyst quote comes first, with the next, more tempered, a full seven paragraphs later:
“This is not so much a green shoot as it is a green tree,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “Optimism on Japan is certainly not misplaced as we look at a reasonably strong quarter of growth in April to June.”…“Japan’s economy may return to growth in the second quarter, but looking beyond, there will be strong downside risks,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “The deterioration in employment and income conditions will likely become clearer in the months ahead, taking a toll on consumers and the economy.”
And these two comments, spaced apart towards the end of the story:
“Confidence has turned,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. “Even if corporate management thinks demand will be sluggish in the medium-to-long term, all of this fiscal support means there’s definitely demand in the short term.”…“It’s dangerous to be too pleased with the economy bottoming out,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. “Japan’s economy will fly low and experience more turbulence until the second half of next year.”
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with the assumption that everything changed back in Sept of 2008…i always ask myself “what HAS changed?” because if something hasn’t changed, its in for a rude awakening.
For instance, US consumers have started saving. That’s a structural change and is something that is necessary to even out the huge imbalance of the last decade or so of spending.
But in mercantilism-land, nothing has changed. They are still clinging to exports and live and die by a weak/strong currency.
Gov’t spending is supposed to grease that change, but in fact, in all cases its inhibiting it.
The US fiscal stimulus should be offsetting consumers, but its not. Its just a bunch of earmarks that don’t get spent in a timely manner.
Japanese and Chinese fiscal stimulus is geared toward seemingly endless infrastructure expansion and increasing exporting capacity…exacerbating the overcapacity in those areas.
There needs to be structural changes…but they are not happening. We are just being fed a bunch of second-derivative statistics for a global-economic model that no longer applies.
For example, seeing China’s exports decline at a slower rate does not make me feel better. now if, say, china’s imports declined at a slower rate than exports…aka china importing more than its exporting…that would be good news. that would be a second-derivative positive for something that is structurally different from the last economic cycle.
So seeing these “second derivative positives” kind of reminds me of when a company has to carry an obsolete business on its books in its “discontinued operations” segment of the pnl. Sure the run-off business might do better quarter over quarter…but who cares? That business is no longer relevant.