By: Dr. Mike Campbell
Japan remains the world’s third largest economy despite natural disaster, a high Yen and economic woes such as deflation; enormous public debt; (relatively) high unemployment (in Japanese terms); aging population with concomitant, rising social security costs; and falling demand in key export markets. Japanese public debt is estimated at 200% of GDP (approaching $12 trillion which puts the Greek debt “crisis” nicely into perspective) and has been steadily climbing for thirty years.
Figures recently released by the government show that the Japanese economy contracted by 2.3% in Q4 2011 compared with the comparable quarter in 2010; analysts had anticipated a fall of 1.4%. The contraction compared to Q3 2011 came in at 0.6%. Various factors have contributed to the contraction of the Japanese economy; not least of which has been the rise of the Yen to record levels against the Dollar and the Euro over the course of the year which make Japanese exports less competitive in importing markets. A fall in demand as the global economy has stuttered and continuing uncertainty over the sovereign debt crisis in Europe have all conspired to weaken the Japanese position. Demand in China and India, both key markets for Japan, has also weakened recently and unemployment remains problematic in both the USA and Europe (substantially above the “high” levels of 5% currently seen in Japan).
On the back of the GDP data, the Bank of Japan has announced a fresh round of its own form of quantitative easing. The Bank will pump $130 billion into the economy through asset purchases. It also stated that its policy of low interest rates (between 0 and 0.1%) will continue. News of the capital injection cause the Yen to fall against other major currencies – it is currently trading at 78.0210 against the Dollar.