Japan has been at the forefront of weakening GDP/wages/growth, deteriorating demographics, elevated sovereign debt and extreme monetary policy. Of all the major economies, given its existing debt burden and aging population, Japan is arguably the closest to Helicopter money.
Post 2012, policy (Abenomics) aimed at stimulating demand, generating wage growth and inflation has failed with respect to the specific objectives set. But then again, what is an optimal level of consumption in a declining demographic paradigm? Perhaps in the modern world it is one which drives growth to the point that current debt levels become manageable, or where risky assets provide returns commensurate with the consumption liabilities expected to be provided by them. In this context, global Central Banks have been consciously attempting to manufacture growth for at least a decade. Helicopter Money would however break this intercession, acknowledging that only more money supply and more debt relative to growth can support the expenditure/infrastructure side of the balance sheet: it is difficult to comprehend just how the asset side of the balance sheet would evolve in such circumstances. I suspect that there would need to be an adjustment, a reset, but even that would be only half the story. That said, on to Japan:
Japanese real GDP growth has been sliding heavily since the bursting of its own asset bubble starting in 1990:
Abenomics saw a spurt in nominal GDP but no palpable improvement in the real growth trend:
Household consumption growth has likewise tailed off and this has gained pace of late:
Responding, at first glance, initially to monetary stimulus (?), household consumption has since tailed off and is back below pre Abenomic levels:
Real household consumption has failed to move forwards since the end of the 1990s in fact:
Another key driver of growth, gross fixed capital formation has also stagnated:
As has one of its key components:
Export growth has also tailed off following a post Abenomic stimulus and exchange rate enhanced bounce.
Once we get to employment growth we can see the major mover behind expenditure weakness:
Demographic impetus to GDP growth has peaked and as the population ages so does other forms of economic leverage, notably consumer credit and other loans:
The following chart shows Household and non profit credit market debt for Japan and the US. It is plausible that household debt growth is going to continue to be constrained as Japan’s population ages and there are some moot concerns with respect to US debt levels as its own population ages:
Japan has actually increased its employment participation rates in spite of declines in its population and workforce:
We can see that employment amongst mays aged 15 to 64 has fallen as women and women over 65 and men over age 65 lead the way: growth it would seem is challenged despite quite strong employment characteristics:
A comparison to the US, which has stronger demographics, illustrates the constraints on Japanese growth:
The ratio of real GDP growth to employment change, as a percentage of population over three years, is 2.76 in the US and 1.03 in Japan. It would be interesting to also adjust for age differences in the demographic, but it may look as if wage growth is also impacting GDP. Despite the increase in employment amongst the over 65s and the rise in the employment rate, wage growth has been disappointing:
The question is, what is Japan to do after massive monetary stimulus has apparently failed….
to stimulate growth and inflation? Japan’s monetary base is close to 70% of Japan’s GDP.
But annual loan growth, while it has recovered somewhat….
…is pedestrian when we compare it to US loan growth:
Loans to households looks to have been spurred on post 2012, although again loans to non financial corporations and households pales against those seen in the US:
And recently we have seen much weaker manufacturing data from Japan:
The latest Nikkei Japan Manufacturing PMI:
“….the rate of job creation easing to a six-month low….input prices declined at a quicker rate enabling firms to reduce their selling prices further…..the latest reading was the lowest for over three years. New orders at Japanese manufacturers decreased for the second month in a row….rate of contraction was the sharpest in nearly two years….the primarily contributor to the decline in total new work intakes was a sharp drop in international demand, as new export orders decreased at the fastest rate since January 2013. A number of the survey panel blamed instability in the wider Asian economy……production contracted for the first time since April 2015……..Firms also mentioned client negotiations and competition driving down selling prices”
Follows on the heels of recent government downgrades of consumer expenditure and other measures of economic activity. A March 18 Wall Street Journal article echoed similar concerns:
And of course, the kicker, is that Japan already has a mountain of debt: