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Economy in Brief

Japan IP: Reviving And Surviving
by Robert Brusca  October 17, 2011

Japan's disasters have left an indelible mark on its economy and on the global economy as well. As an important manufacturer and exporter Japan is a source for parts as well as goods, especially in the auto industry. Parts and goods went into short supply when Japan's economy was struck by its triple disasters in the form of an earthquake, a tsunami and a nuclear meltdown.

The chart shows that Japan's economy was hit hard (three month growth rates of IP) and has since recovered sharply and is now seeing a much-reduced rate of growth. Japan's longer term growth rates over six-months and 12-months show us that deep negative growth rates have given way to shallower but still negative growth rates. Over six months the pace of reduction of the magnitude of the negative growth rates has seen some set-backs as some of the declines have reaccelerated but in a minor way.

The figures to the far right in the table tell the story of how far back Japan has some. Those figures show you the current level of real industrial output by sector compared to its recent cycle peak. Note that in the quarter-to-date T-port (transportation) is rocketing back at an astounding annual rate of 371%. Note also that transportation output as a percentage of its cycle peak is only at 80% and it is the weakest sector in Mining and MFG in the table.

Japan is snapping back but it has a long way to go. World growth has not been helpful and the sudden strengthening of the yen has given Japan what could be termed as a ‘fourth disaster' to overcome, an overly strong exchange rate.

Complex patterns are playing out in Japan's IP trends as its MFG rebound is losing momentum and as the longer-dated growth rates have yet to turn positive after an extended drop. Japan's industrial sector is nowhere near back to its pre-disaster pre-financial crises peaks of output and as a nation, it is still fighting of deflation.

But Japan's economy is bouncing back. The output of consumer goods is in the lead in terms of recent short-term growth rates but Japan's sector indices of output (consumer, intermediate and investment goods) are surprisingly tightly clustered in terms of their current standing relative to their respective past cycle peaks at about the 88% mark.

As Japan's auto sector has rebounded the global vehicle market has started to recover as well. Still there are new concerns with the European debt situation see-sawing with sentiment shifting day by day and the US Republicans Vs Democrat drama deadlocked in gridlock.

The G-20 met this weekend and probably wishes that it had not. It had nothing good to report and the initially optimistic renderings of its meeting were undercut on Monday by the German finance minister who said he doubted that there would be an agreement by the 23rd of October, which was something that the previous summit stories from the weekend seemed to suggest would occur.

But it gets worse. In the UK the government is fighting off a vote to try to force a new national referendum on the EU. The UK is an EU member, not and EMU member. Undoubtedly some are angered over the rules in EU others angered by the EMU's inability to make progress and by the carping for a financial transactions tax in EU that could sink the major industry that keeps London vibrant.

Just when world leaders and markets begin to think that things were getting better and that they were coming closer to having an agreement on some of our big problems new glitches have arisen. New growth concerns have welled-up, new and unexpected impediments over old issues suddenly have reappeared, or maybe it's just another curve ball from Mother Nature... Japan has some special issues in trying to mount a sustainable recovery but it is not the only nation trying to scramble up over a very unstable and fast-shifting rubble. The world economy is again under duress and there is no telling where the next shock will come from or if it will be real, financial, technological, geopolitical or tectonic. And that is frightening.

Japan Industrial Production Trends
  M/M% SAAR % Yr/Yr Q-2-D % of
Seas Adjusted Aug
3Mo 6Mo 12Mo Yr-Ago % AR Cycle
Mining & MFG 0.6% 0.4% 3.8% 21.2% -8.6% -1.0% 13.7% 28.2% 87.6%
Total Industry 0.6% 0.2% 3.6% 19.1% -9.0% -1.5% 13.5% 25.6% 87.6%
MFG 0.6% 0.4% 3.7% 20.7% -8.6% -1.0% 13.9% 27.9% 87.6%
Food&tobacco -3.3% 2.1% -3.1% -16.4% -10.9% -3.6% -0.1% -6.5% 93.3%
Textiles 1.8% 0.3% 0.4% 10.4% -2.3% 1.8% 3.8% 5.7% 85.5%
T-port 7.8% 5.5% 23.0% 283.8% -7.4% 1.8% 20.7% 371.6% 80.0%
Product Group
Consumer Gds 0.1% 0.9% 6.4% 33.6% 5.7% -2.8% 5.9% 57.5% 87.5%
Intermediate Gds 1.4% -0.2% 3.7% 21.2% -17.1% -2.1% 14.8% 17.6% 87.6%
Investment Gds -0.3% 0.3% 1.4% 5.7% 0.0% 5.0% 21.6% 21.2% 88.6%
Miining 3.6% -3.5% -5.2% -19.4% -17.1% -2.3% -5.3% -19.5% 80.5%
Electric&Gas -1.7% -1.5% 0.5% -10.3% -18.8% -10.9% 11.9% -9.0% 87.9%
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