It was a telling economic year for Japan with two significant economic events in 2006.
The major one was the central bank halting its monetary easing policy in
March and raising the basement short term interest rate to one quarter
of a percent four months later, which brought to a close over five years
of “zero interest rate” economic policy.
The Bank of Japan’s actions also had the effect of bumping its discount rate from 0.2 percent to 0.35 percent.
Another major positive development was the scope of Japan’s economic
expansion. It’s been the longest expansion post WW2 since the famed
Izanagi boom in the late sixties.
Of course, the explanation for recent interest rate hikes is the long
term recovery of the nation’s economy, contrary to the sentiment of most
of the population even in the face of over four years of expansion.
It is understandable that many are confused at the lack of agreement
between official governmental figures and the sentiment of Japan’s
public at large, so what is the reasoning behind it?
From what we can tell, there are three main reasons for the discrepancy.
Firstly, the rate of the country’s economic growth is extremely slow
compared to the Izanagi boom. A two percent expansion doesn’t exactly
make big headlines at street level.
A secondary consideration is the wealth gap between the rich and poor
regions in the nation, and levels of society. In the time period just
after the war the economic recovery was much more evenly distributed and
did not discriminate between region and person.
Thirdly, one has to remember the sheer lack of inflationary pressure
present that can be used to boost corporate sales. This has the effect
of forestalling the movements of prices in the country into positive
territory.
There is one thing different about the world today, and that is
globalization. Economic booms simply don’t happen at the rate and scope
that they used to when raw material, products and even land and wages
are being exposed to international competition. Great expansion just
doesn’t automatically mean a quick and tangible increase in the standard
of living anymore.
What does the future hold for Japan? Many experts feel a definite
recession is looming as expansion seems to have run its five year
course.
However, Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management
believes that 2007 will be an even better year for expansion than this
year. “When you look at the big picture you understand that the Japanese
economy is dependent mostly on its exports and foreign capital
investment. Both of which continue to be strong and show no sign of
letting up.”
