During 2007, myself and especially Feldman and Takehiro Sato from Morgan Stanley have tended to move pretty much in unison when it comes to the economic analysis on Japan (non colluding!). Of course, this is very much due to the fact that I always make sure to read, at least, what the MS' Japan analysts have to say before saying anything myself on Japan. In this way, it is one thing to actually follow other analysts whereas an entirely different thing is to agree with them. However, it just so happens that I have largely agreed with the way Sato in particular covering the day-to-day analysis and Feldman have narrated the Japanese economy in 2007. This time around however it seems that Morgan Stanley might just be trailing me and my colleagues at JEW a little bit. At least, the following sounds very much as the tone which has been banging from the pages of Alpha.Sources' Japan pages as well as of course Japan.Economy.Watch' (JEW link above) day-to-day coverage and analysis for some time now.
Japan's economy is headed for a ``mild recession'' that could be worsened should a bigger-than- expected U.S. slowdown halt the nation's export-led expansion, Morgan Stanley said.
``It's time to buckle up,'' Takehiro Sato, chief Japan economist at the investment bank, said in a report yesterday. Sato cut next year's growth estimate for Japan in half, saying ``errant'' government policy has hurt consumers and the building industry at home, and credit problems stemming from the subprime- mortgage crisis will stifle demand from abroad. The world's second-largest economy is becoming more dependent on overseas markets just as world growth looks set to slow. Policies meant to protect homeowners from building fraud and borrowers from predatory lenders have hurt an economy that's already struggling with falling wages and record gas prices. ``The foreign-demand growth scenario for Japan's economy appears to be approaching a tipping point,'' Sato said. ``Coming on top of high energy prices, the fallout from the subprime crisis and errant policies will likely cause economic activity to stagnate.'' Sato slashed his 2008 growth estimate to 0.9 percent from 1.9 percent a month ago. He considers growth of less than 1 percent ``for an extended period,'' to constitute a ``mild recession.''
Of course, you would be well entitled at this point to ask just what this idea of a mild recession actually means. According to Sato it is defined by growth in the sub 1 % category for an extended period as you can confirm above. The question would then seem to be whether in fact not Japan might be heading for negative growth rates too? Difficult to say but the risk is definitely there I think. Also, I really want to warn against the discourse which is emerging about all this being the result of errant government policy. Institutions matter for sure but Japan's economy is faced with a far more potent driving force in its population structure and the last thing we need here is really that this is neglected while politicians are taking the heat even if those very same have not exactly put in a stellar performance. The thing is, people need to get their economic reasoning straight. Back in the beginning of 2006 and as we moved onwards from the ending of ZIRP in Japan myself and my colleague Edward Hugh were literally amazed to how the majority of the economic punditry came out exclaiming that now Japan was back amongst the leaders to paraphrase the FT's otherwise excellent Martin Wolf. And now suddenly it is the blame the politicians for the fact that it did not came to pass and not by a long-shot too. Something does not smell right here and I would be very discomforted to see if all this shored up yet again on the shoulders' of the 'institutions matter' paradigm since can these shoulders really take on more load as it is? You know, there is another side to this story too and far from being mutually exclusive we need both of them; institutions, policy and governance ... oh yes and demographics? Yes please!
Ok, sorry to be a rant here in the month of Christmas but I do feel rather strongly about this I am afraid.
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