Japan: weakening growth and inflation, and an unpopular government

I was in Tokyo last week, seeing a mix of economists, JGB experts and clients.  I was also awesome at karaoke, dressed as an astronaut.

The last time I was in Japan, over a year ago, I came away thinking there was a decent chance that the Bank of Japan would abandon its zero interest rate policy (ZIRP) as it was damaging banks’ profits, and sending a negative signal to Japanese households and businesses.  At the time we were also seeing an uptick in core inflation and positive growth.  It doesn’t feel like the BOJ has that view now.  There’s no economic despair, but both growth and inflation have weakened, and Abe’s falling popularity raises the prospect of a new LDP leader later this year with less fiscally expansive views.  We also have a dreaded consumption tax hike on the horizon – we know from past hikes that it means higher spending now, and a slump thereafter. There’s still plenty of good news too – unemployment rates even lower than the US, and a continuous rise in the female participation rate.  In this 4 minute video from the Tachikawa Velodrome (no good reason, sorry) you can hear my views from Japan, and look at a) some cool charts, and b) keirin racers.

Finally, some anecdata.  Did you know that post the 2011 tsunami, 43 of Japan’s 54 nuclear power stations remain offline.  Before the earthquake they made up 30% of Japan’s electrical power needs.  In order to save electricity the government introduced a policy called “Cool Biz”.  From the start of June and throughout the summer months, all government and state workers are forbidden to wear jackets and ties to work (and private companies are encouraged to follow this policy too).  In government buildings air conditioning is not allowed to kick in until the temperature is above 28 degrees centigrade.  Ouch.  We are all desperately leafing through health and safety legislation in the hope of being sent home when our ailing aircon here sees temperatures of 24 degrees…


The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

Jim Leaviss

Job Title: CIO Public Fixed Income

Specialist Subjects: Macro economics and fixed interest asset allocation

Likes: Cycling, factory records, dim sum

Heroes: Brian Clough, Morrissey, Neil Armstrong

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