Japan's Economy Remains Stagflation

The revised data released by the cabinet of Japan on 8 may show that after excluding factors of price changes, the gross domestic product (GDP) of the country in the third quarter of this year dropped by 0.5% compared with the previous quarter, and the conversion rate decreased by 1.9% and the rate of decline was 1.6% larger than the initial value. At this point, the Japanese economy has been more clearly identified for two consecutive quarters of negative growth. Although "Andouble economics" has caused the depreciation of the Japanese yen and led to the rise of the Japanese stock market for a time, the gap with the national real economy is widening.

Analysts also stressed that more attention was paid to the decline of economic growth in Japan, but the price level of Japan was steadily rising. In fact, the continuous improvement of the BoJ's effect on inflation is more obvious. Although all sectors of Japan are worried about their twenty years of deflation, it will be no worse than Japan's "stagflation" when the economic growth stagnation and rising prices co-exist.

　　 Economic contraction exacerbate

According to the data of Japan's cabinet office, the country's seasonal equipment Investment decreased by 0.4% compared with the annualization rate, 0.2% more than the initial value, and the growth of public investment also narrowed from 2.2% to 1.4%. Because of the poor weather in summer, personal consumption increased by only 0.4%, the same as the initial value. Residential investment decreased by 6.8%, and the reduction was enlarged by 0.1% compared with the initial value. All these data show that the negative impact of Japan's consumption tax increase in April is still continuing or even expanding.

In addition, the nominal GDP, which is close to the actual economic situation, has decreased by 0.9%, a decrease of 3.5% after the adult rate and an initial decline of 3% over the annual rate. At the same time, the actual GDP determined in 2013 was increased by 2.1%, and nominal GDP increased by 1.8%, which was 0.1 percentage points lower than the previous initial value.

Japan's Kyodo news pointed out that a number of private think tanks have predicted that the third quarter GDP correction will be better than the initial value, but the actual situation is a larger decline. Due to the increase in consumption tax and the rise in prices due to the depreciation of the yen, the slow recovery of personal consumption and the poor investment in equipment and equipment that is expected to improve have made the data difficult to be repaired.

　　 Deva Lil, economist at HSBC in Japan (Izumi)

Devalier said it had expected several investment spending figures to be revised, but the data released disappointed the outside world. In addition, it is more worried about Japan's personal consumption. In the long term, whether the rising momentum of private consumption is strong enough is the most important reason for Japan's economic recovery next year, but at least until next April 1st's new fiscal year, it does not believe that private consumption will recover. The Japanese government wants companies to make a new round of pay increases, but in the eyes of the company, the company remains cautious.

UBS also stressed that the main reason for Japan's economic downturn is that GDP accounts for about 60% of the personal consumption continued to be weak. Investors expect the depreciation of the yen to boost the performance of large enterprises based on profits from overseas markets. Japan's stock market climbed with this optimism, and the BoJ stepped up monetary easing and the recent fall in crude prices also played a positive role in the stock market. However, the strong stock index did not bring wage increases and equipment investment expansion, and Japan's overall economic situation did not improve.

　　 Vigilance Stagflation risk

Analysts pointed out that what is more frightening than the economic shrinkage now is Japan's "stagflation" situation, which has both economic downturn and price inflation. According to the latest data, Japan's core inflation rate dropped to 0.9% in October against the background of a sustained drop in oil prices. But in the past year, the core inflation rate of Japan has remained above 1%, and in April it has reached 1.5%, which is very rare for Japan, which has been suffering from deflation for a long time.

Most market analysts also predict that inflation will accelerate in April next year, close to or even exceed the 2% target of the Bank of Japan, as the weaker yen pushes import prices and oil prices may rebound.

Morgan Stanley said in its latest economic outlook report that stagflation is likely to happen if the Japanese government does not have more effective measures. Morgan Stanley emphasized that the Japanese economy will shrink by 0.1% in 2015, and then increase by 0.9% in 2016. At the same time, the inflation rate of the Japanese economy will reach 1.8% and 2.1% respectively in the next two years, reaching the target set by the Bank of Japan. Morgan Stanley analysts believe that if wages and prices pursue each other, Japan's inflation may rise sharply. Even if the Japanese government's policy has not brought about too much growth, Japan's labour shortage may still put upward pressure on wages.

Mizuho Securities said that at present, the central bank's direct monetary stimulus to boost prices is more obvious than the economy. Once Japan's price rises substantially, its growth rate is still weak, and the whole economy will face greater turbulence. The recent decline in Japan's inflation rate is largely due to the weakening of crude oil prices. However, oil prices also have a "bottom". Once it hits bottom, it will no doubt continue to push up inflation in Japan.