The beginning of Japan's third lost decade
Dan Steinbock says the effects of Japan's massive monetary gamble will have consequences not just at home and in Asia, but globally too
Japan's fiscal discipline is worsening. In the coming years, the consequences will be felt in Japan, the region and worldwide. In the past quarter, the economy fell into recession. In the West, it was characterised as "unexpected", but the realities are precisely the reverse.
With its third "lost decade", Japan has entered an era of huge monetary expansion that it not well supported by the fundamentals of its economy.
Any premature exit from more fiscal stimulus and monetary easing will backfire. So Tokyo plans to resolve its money troubles by adding to its debt.
In the three months to September, Japan's gross domestic product contracted by an annualised 1.6 per cent as a result of the sales tax rise in April. Consumption accounts for about 60 per cent of the economy, but it remains fragile.
When household assets rose to a record in June, Prime Minister Shinzo Abe's Liberal Democratic Party called it a sign of successful reforms. Yet, the 3 per cent tax rise and the Bank of Japan's historical easing boosted living costs faster than incomes.
A year ago, there was much talk that "Japan is back". But even though the yen has fallen 13 per cent against the dollar, exports added only 0.1 per cent to GDP, which has been driven by public spending.
