Daily Management Review

Slow Global Demand Hits Japan’s Wider Economy Threatening Abenomics


12/23/2019




Moiré sectors of the Japanese economy are being impacted by the hit to exports from slowing global demand and there is a general slowdown of growth in the economy which has raised the question of whether Japan’s “Abenomics” stimulus program is finally reaching a turning point.
 
Next year, novel ways to stimulate growth in the world’s third-largest economy will have to be devised by the Japanese government and its central bank because of the slowdown. However analysts also say the both have almost emptied their policy arsenal.
 
And analysts are of the opinion that even if there is a contraction in the fourth quarter in the Japanese economy, it would not be a a major catastrophe provided that the US-China phase one trade agreement hold.
 
However the aim of Prime Minister Shinzo Abe of attaining both economic revival and fiscal consolidation via a a strategy of implementing mixed monetary easing, flexible spending and structural reform seems to be threatened because of the signals of a cooling of the Japanese economy.
 
There is an agreement among policy makers that the heavy hit to Japanese exports and reduction in factory activity because of declining external demand has not been able to significantly impact the domestic economy of the country.
 
However doubts about the holding of the divergence between the broader economy and the manufacturing sector for in the long term have been raised because there are signs that Japanese policymakers may have overestimated the strength of consumer demand as there is a drop in the sale of cars as well as sale in department stores.
 
“There is always a link between the manufacturing economy and the domestic economy. Ultimately, the weakness of one will spill over into the other,” said Steve Cochrane, chief APAC economist at Moody’s Analytics.
 
However a hoist of recent data shows that there is a loosening in the labor market conditions and a weakening of domestic demand.
 
There was more than expected drop in sale at department stores in October following increase of sales tax across the country in November. The drop in October was 1.5 times more than the figure in the month just before the last time tax was hiked back in April of 2014.
 
One of the sectors to be hit by the sales tax hike was new car sales which saw a drop in demand in November after the tax hike with a 13 per cent drop in sale in the month year on year.  They had already nearly recovered in the same time period after the 2014 tax hike.
 
Factory output was also hit because of a drop in demand for cars both abroad and at home which resulted in declines in car production. Along with that a powerful typhoon also pushed down factory output. The pace of drop in October was the fastest in nearly two years.
 
The Bank of Japan’s December “tankan” survey showed an easing of conditions in the job market for manufacturers because of stagnation in output. According to analysts, one of the key drivers of behind the strong consumer spending would be threatened if there is further easing in the labour market potentially resulting staling of wage growth.
 
“It will be a red light (for the economy) if first-quarter growth is bad,” the official added.
 
(Source:www.reuters.com)






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