Another one on Japan ...

325258-257551-thumbnail.jpgIn the post below I stuck out my head from the trenches and gave a kind of prediction of what was going to happen in 2007 in Japan. I guess you could say that I tried to say what was not going to happen in terms of my reluctance to buy the stories of a sustainable recovery and tranisition to a domestic consumption driven growth path which would merit that the BOJ raises interest rates. This one is more light and a hat tip to Edward Hugh who writes about a recent government report on the Japanese economy (Yahoo News). Not surprisingly sluggish domestic consumption is still the ever present missing link ... 

The Japanese government kept its assessment of the economy unchanged on Monday, saying sluggish consumption was hurting the country's economic recovery, as the central bank's governor remained cautious about an early interest rate hike. Rising production and capital investment propelled the world's second-largest economy to a record 59th consecutive month of recovery — nearly five years — since January 2002, according to a Cabinet Office report released Monday.

But the report, which looks at a variety of economic factors besides gross domestic product, warned of weakness in consumer spending, saying sluggish growth in wages was keeping spending flat.

Domestic demand, which accounts for more than half the economy, undercut growth in the July-September quarter, forcing the government to downgrade its economic outlook earlier this month.

Beating deflation is clearly a first priority here and as such the BOJ will probably be on hold. Notice also how some (still) believe that the transition towards a 'balanced' growth path is inevitable.

"The government and the Bank of Japan will make joint efforts ... to realize sustainable growth based on shared macroeconomic management perspectives," the report said.

Abe's government has repeatedly said the country must first beat deflation — the spiraling price declines that have long undermined corporate earnings and wages — before any rate hike. But prices have been slow to recover, with a key price index rising just 0.1 percent in October from a year earlier.


"As the economy becomes more robust and corporate performances improve, those effects should cross over to the household sector," Mitarai, who is also chairman of Canon Inc., told reporters.

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