Tag Archives: deflation

Japan: ‘Extremely Little’ Room For Stimulus

20 Mar

From Bloomberg:

National Strategy Minister Yoshito Sengoku said Japan has “extremely little” room for further stimulus spending because of the country’s financial condition.

“From a fiscal point of view, there’s extremely little room for such a thing,” Sengoku said in an interview in Tokyo yesterday when asked about the prospects for another spending plan. “We need to carefully watch whether the situation would go to such lengths.”

His remarks contrast with comments made this week by Financial Services Minister Shizuka Kamei, who urged the government to compile a stimulus package to bolster the deflation-plagued economy. Prime Minister Yukio Hatoyama said on March 17 that he hadn’t discussed such a proposal.

Standard & Poor’s cut its outlook on Japan’s AA sovereign rating to “negative” in January, a move Sengoku described at the time as a “wake-up call” to repair the nation’s finances. Japan’s ratio of debt to gross domestic product is approaching 200 percent, the highest among developed nations, according to the Organization for Economic Cooperation and Development.

Japan is closer to the edge than any other major economy,” said Julian Jessop, chief international economist at Capital Economics Ltd. in London. “There is the risk that the higher the debt numbers are, the more another stimulus package is going to backfire by pushing up interest rates or by making people worry about the need for even bigger fiscal tightening in the future.”

Japan is Australia’s second largest trading partner.

While China has become our largest trading partner in recent times, it is interesting to note the latest trade figures from the Department of Foreign Affairs and Trade

It seems our export trade with China has fallen sharply from Dec ’09 to Jan ’10.  And has been in slow decline since March 2009. That is a trend to watch closely.

There are many grave questions being raised about the sustainability of the China boom. And Japan’s economy is clearly in very deep trouble indeed.

So it is gross incompetence for our financial authorities – such as RBA Governor Glenn Stevens and Treasury Secretary Ken Henry – to continue to plan on our two largest trading partners being able to sustain our economy and get us out of debt in the years ahead.

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