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By HaleStewart October 7, 2014 12:13 pm
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BOJ Notes Weakening Economic Picture

     There was a profound fear of Japan when I was in college back in the 1980s.  It seemed as though Japanese investors were purchasing every piece of real estate in the US.  Japanese companies were also handily outperforming their US competitors, leading to the US studying Japanese management and business techniques.  The phrase “Japan, Inc.” became synonymous with a seemingly impossible to compete with Asian juggernaut.

     Times have definitely changed, as Japan has been stuck in a liquidity trap for the better part of 20 years.  The latest attempt to escape the downward deflationary spiral was put in place by Prime Minister Abe and dubbed “Abenomics.”  However, it appears the policy is losing its impact.  Today, the BOJ downgraded its growth forecast, noting several areas of weakness:

Exports have shown some weakness. Business fixed investment has increased moderately as corporate profits have improved. Public investment has more or less leveled off at a high level. Private consumption has remained resilient as a trend with the employment and income situation improving steadily, and the effects of the decline in demand following the front-loaded increase have been waning on the whole, albeit unevenly. As for housing investment, the decline following the front-loaded increase has continued. Industrial production has recently been showing some weakness, due in part to inventory adjustments. Business sentiment has generally stayed at a favorable level, although its improvement has paused due mainly to the effects of the consumption tax hike.

Also note the overall decline in the coincident indicators available from the BOJ:

The weakening picture is putting more pressure on policy makers to do something to alleviate the situation.

Hale Stewart is a former bond broker who has been writing about economics and financial markets since 2006 on the Bonddad Blog.  He is also a tax attorney with a domestic and international practice while also forming and managing captive insurance companies for US companies.   You can follow him on twitter at:@captivelawyer

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