Business Sentiment in Japan Worsens

http://www.bbc.co.uk/news/business-20722595” target=”_blank”>According to the BBC, Japan’s large manufacturers report worse sentiments as a result of the long-time problems of strong yen, slowed export demand, and weak domestic consumption, with no end in sight. Furthermore, for the last two quarters, Japan’s economy reported a recession in GDP.
This is just another testament of the prevalence of the problems we discussed in class, and Japan should enact further fiscal stimulus. The news article discusses a couple measures worth 10 billion USD or so, but that seems largely ineffective. What may be necessary is a dramatic stimulus of the nature of the ones the United States passed during the beginning of the recession. Attached with the stimulus should be a demand that companies raise wages. Also, why does the government not cut corporate taxes for greater stimulation?

2 thoughts on “Business Sentiment in Japan Worsens

  1. savas

    I think that the real problem here is Japan’s deflation. Japan seems to be in a constant deflationary spiral. The decrease in prices has lead to lower production, which lower wages and demand, which leads to further decreases in prices. The main method for counteracting deflation is targeting an interest rate. However, in the case of Japan, targeting an interest rate to figure out the quantity of money in circulation necessary to create inflation is ineffective because Japan’s real interest rate are too high. I know that the next thing I am going to say is not Japan’s goal or intention. But is it possible that Japan is maintaining this level of deflation in order to make its deficit cheaper and easier to pay off?

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  2. wilburns

    I posted on this later, sorry for the delay, but I think this is relevant:

    “This may be due to the fact that before the election of the new government in Japan the BOJ was largely ignoring the very strong calls for increased economic stimulus to the Japanese economy, refusing to increase its $135 billion asset purchasing program to try and wrestle inflation back into the positive. The diplomatic row with China along with the earthquake on 3/11 haven’t helped manufacturer’s ability to produce. The increased energy costs of the shutdown of the country’s nuclear reactors has also sent production costs skyrocketing, increasing export prices, and a worsening trade picture can’t be aiding manufacturing prospects either. The diplomatic disputes with China have gotten particularly bad, as several anecdotes have been offered showing suffering manufacturers, like Japanese ping pong supply company Tamasu.”

    Also, energy costs’ impact on production costs are a real burden. The increased imports and rapidly rising prices of fossil fuels were already costing Japan a considerable amount of its GDP before 3/11. In 2001, Japan’s imports of fossil fuels cost 1% of the nation’s GDP and increased to 4.8% by 2008.

    http://www.ft.com/cms/s/0/4df9caa0-45d3-11e2-b780-00144feabdc0.html#axzz2FONspIXT

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