Japan is an export driven economy and these numbers have fallen off a cliff . This has led to what may be the worst recession since WWII. This is worse than the lost 1990's because in that case exports were still strong even though the domestic economy was in shambles.
The response has been to follow the Obama game plan of increasing fiscal stimulus to 2% of GDP through announcing another round of fiscal spending increases (10 trillion yen). This is what President Obama asked for from the G20 and got rejected by the EU. Clearly this is needed with growth in Japan expected to be -6.6 as forecasted by the OECD.
While this is a good stopgap, the rest of the world has to grow to get Japan back on its feet. Interestingly, the NKY is down only 2.99% YTD and the Topix is down 5.12. The market is anticipating that the recent announcements will have a positive impact because it is off the lows since the middle of March. The yen on the other hand has continued to move lower. The combination of QE on the monetary policy and strong fiscal policy is an attempt to stimulate the economy allow and allow the yen to decline to help exporters. Will it work? The 1990's round of fiscal stimulus was not very productive. The key is still coordinated policy across countries.
The response has been to follow the Obama game plan of increasing fiscal stimulus to 2% of GDP through announcing another round of fiscal spending increases (10 trillion yen). This is what President Obama asked for from the G20 and got rejected by the EU. Clearly this is needed with growth in Japan expected to be -6.6 as forecasted by the OECD.
While this is a good stopgap, the rest of the world has to grow to get Japan back on its feet. Interestingly, the NKY is down only 2.99% YTD and the Topix is down 5.12. The market is anticipating that the recent announcements will have a positive impact because it is off the lows since the middle of March. The yen on the other hand has continued to move lower. The combination of QE on the monetary policy and strong fiscal policy is an attempt to stimulate the economy allow and allow the yen to decline to help exporters. Will it work? The 1990's round of fiscal stimulus was not very productive. The key is still coordinated policy across countries.
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