Remember Japan?

People are obsessed with the Euromess and the Fiscal Cliff. What about Japan? A few reflections via Caixin Online.

Every time I come to Japan to attend a conference, I am reminded of what a depression looks like in the 21st century. This time is no different: shops are not busy, restaurant owners wait anxiously outside for customers and are usually disappointed, empty taxi cabs roam the streets. Two decades after its property bubble began to deflate, Japan remains mired in deflation and contraction.

The economic statistics tell the horror story best. Japan’s nominal GDP in 2011 was 9 percent lower than in 2007 and 2.5 percent lower than in 1992! In 1992, the national debt was only 20 percent of GDP. It is now 230 percent. Essentially, 200 percent of GDP in fiscal stimulus hasn’t turned the economy around.

The depression dynamic begins with declining incomes. People then spend less to cope. Shops and restaurants become emptier. The weak demand depresses business profitability and investment. The former depresses the stock market, and the latter labor income. Both pressure people to spend even less.

Few people pay attention to Japan’s problems nowadays. Financial markets pay a lot of attention to the United States’ economic problems. But its nominal GDP rose 7 percent between 2007 and 2011 and is likely to rise another 4 percent in 2012. Japan could at best achieve zero growth in nominal GDP in 2012. The performance gap between the United States and Japan is 20 percent in nominal GDP since 2007. America’s national debt has doubled since 2007 and reached 100 percent of GDP in 2012. Its trend isn’t sustainable either. But Japan’s debt problem is more advanced in depth. Its debt crisis should occur before the United States’.