Well I can think of several reasons, and none of them particularly related to the lamentable lack of security at nuclear power stations that was recently revealed there.
One good reason to worry might be the use and abuse of economic statistics that goes on in the Japanese context. I don’t know whether it is the fact that the Japanese economy is a topic which the majority of English language readers know so little about that means that normal caution is thrown to the winds, or whether Japanese obscurantism with the numbers themselves is the real culprit.
A classic case in point came in the middle of this week with my beloved FT declaring in a headline “Japan?s trade surplus widens as exports rise”, whilst Bloomberg reports exactly the same story in the following terms:“Japanese Exports Fell For A second Month in July”. Now which was it?
My feeling is that Bloomberg has it right, since they base their story on the seasonally adjusted yen value (not volume) figures, which probably are the more appropriate ones to chose. But it does all go to show what a minefield this is for the unwary.
In fact the FT itself today, in this story with the heading “Data signal slowdown in Japanese recovery”, seems to confirm the Bloomberg reading, since given that the Japanese recovery is export driven, if it is slowing, then this should imply that the export sector has cooled, at least slightly.
Another peculiar detail then shows up in the FT article itself: “The unemployment rate rose from 4.6 per cent in June to 4.9”.
Now the Japanese unemployment rate seems to be the most mysterious of numbers, this being due to their convention of dividing the population between those under and those over 15 (with no separate category for those over 65, or 70, or 75, or whatever).
The over 15’s are then divided between those working, those actively seeking work. and those not in the labour force. There is no distinction, however, between an 85 year old not in the labour force and someone of a more sprightly 50 years. This little detail makes movements in the Japanese numbers singularly difficult to interpret, as it is impossible to tell whether someone has stopped looking for work since they are now too old and infirm (remember roughly 25% of the Japanese population are still working by the time they reach 75 – in ‘pre-reform’ Europe we have roughly this percentage as we approach 65). If you really want to see for yourself what is happening, you can go here (Excel file) where you will find that the number of people working remained more or less the same, and that the increase in the unemployment rate is almost entirely due to more people actively seeking work, a statistic which is extremely hard to interpret.
But more than any of these problems with data interpretation, perhaps the main reason to worry about Japan is what we can learn about Europe’s own problems by looking in the Japanese mirror. This can be summed up in two words: the consumerless recovery.
Actually non-other than the Economist itself has an article this week on this very topic. Appropriately entitled “Enduring an Ersatz Recovery”, the article focuses on the plight of the German and Italian governments in trying to get to grips with nascent recoveries where the consumer seems a remarkably reluctant partner in the act.
With the notable exception of France, which is enjoying a heady consumption boom, the euro area?s biggest economies are still dependent on foreigners. Domestic demand in Italy and Germany, taken together, has not grown for a whole year, calculates Eric Chaney of Morgan Stanley; indeed, in Germany, it is still shrinking, figures released on Tuesday August 24th confirmed. The renewed confidence expressed by German businesses at the start of the year continued to ebb away in August, according to the Ifo Institute, a Munich-based think-tank. Retailers were particularly gloomy: Germans, it seems, have no appetite for their own products and services. What growth Germany enjoyed in the last quarter, it owed largely to the continued appetite of China and America for its exports.
In Japan, this time according to Bloomberg, the situation seems to be remarkably similar:
Japanese households unexpectedly cut spending in July and unemployment rose, adding to signs a recovery is faltering in the world’s second-largest economy.
Spending by households headed by a salaried worker fell for a third month, dropping 2.5 percent from June, seasonally adjusted, the statistics bureau said in Tokyo. ….. Consumer spending, which accounts for almost three-fifths of the economy, is declining as wages slide and companies replace full-time workers with part-timers. Falling domestic demand may hold back an economy that grew at a 1.7 percent annual pace in the second quarter, half the rate economists had forecast.
Now my question, and I don’t feel it is an unreasonable one, is whether there might not be a link here. Whether in fact the failure of domestic consumption to ‘ignite’ in Germany, Italy and Japan may not have a common cause: an ageing population, faced with diminishing earnings expectations as it ages, and faced with the need to make greater recourse to individual private saving as the possibilities of state funded retirement benefits continuously recede across a disappearing horizon.
Undoubtedly pension and labour market reforms are necessary, but what I don’t see is how these will stimulate domestic demand, and this is what most of the commentators seem to imagine will happen. Simple logic seems to me to imply the contrary, but c’mon, tell me, what am I missing?