Small Update on Japan

Edward already dishes up the recent relevant data points from Japan over at Japan Economy Watch which all point towards an entrenchment of Japanese economic fundamentals signifying continuous deflation as well as stubbornly depressed domestic demand. This will consequently be a brief data presentation which basically extends some of the data sheets featured in my recent in-depth note on Japan. Let us begin with prices which clearly indicates that Japan remains bogged down in deflation. The general index excluding fresh food stood firm at a negative rate of -0.1% as in the previous four months but notice especially the core-of-core rate which slumped to a rate of -0.5%.

Finally, we have two measures of private domestic consumption which sadly shows how internal demand in Japan is set on a relative downward path in H1 07. We could of course well see a mild recovery in H2 but I don't think this will change the underlying trend.
These charts clearly demonstrates the difficulties with which Japan is having producing the much wanted and hailed 'sustainable' recovery. In fact, if we scrutinize the data as they have been presented recently we can easily see how Japan is not exactly set on a strong and solidified path of recovery in the sense that it will foster a strong sustained pick-up in domestic demand, normalization of Japanese interest rates etc. This does not of course mean that we cannot experience a positive pick-up in the incoming data but we need to remember the underlying trend. In this light I want to make two subtle predictions for the remainder of 2007. 1) Japan will not escape deflation in its core-of-core index and 2) Japanese domestic consumption while maybe osciliating will not nudge above a y-o-y growth rate of 1%.

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