PPT of Adam Posen on Japan

8/7/2019 PPT of Adam Posen on Japan

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The Realities and Relevance of

Japans Great Recession

Neither Rannor RashomonAdam S. Posen

LSE STICERD Lecture

May 24, 2010


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Japanese growth- far from flat

-10

-8

-6

-4

-2

0

2

4

6

8

10

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

% change oyaOfficial Recession Periods (a)

(a) Defined as two consecutive quarters of declining output

Source: Thompson DataStream


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Japanese Real GDP Growth1991 Q1:1999 Q2

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

1991 1992 1993 1994 1995 1996 1997 1998 1999

Private consumption

Private Investment

Public Investment

Public Consumption

Net Exports

GDP

Percent

Source: Cabinet Office Japan


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Public Investment

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2000 2001 2002 2003 2004 2005 2006 2007 2008

Private consumption

Private Investment

Public ConsumptionNet Exports

GDP

Percent

Japanese Real GDP Growth 2000 Q1:2008 Q2Sustained and sustainable growth



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Unlike the early 1990s:

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

1991 1992 1993 1994 1995 1996 1997 1998 1999

Public Investment

Public Consumption

Total

Percent



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2000 Q1 2008 Q2

No public spending binge in Japan

-1.2

-1.0-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

2000 2001 2002 2003 2004 2005 2006 2007 2008

Public Consumption

Public Investment

Total

Percent



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0

100

200

300

400

500

600

1999 2001 2003 2005 2007 2009

0

12

3

4

5

6

7

8

9

10Major Banks (LHS) Regional Banks (LHS)

Topix Bank (RHS)

NPLs as % total portfolio Index

Source: Financial Services Agency Japan, Thompson Datastream

Even Japanese Banks respond to

incentives


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Japanese TFP: far from poor

-5

-4

-3

-2

-1

0

1

2

3

4

2002 2003 2004 2005 2006 2007 2008

Germany UK

US

Japan

France

% change oya



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Average TFP and GDP per worker

2002: Q2-2008:Q2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Japan France Germany UK US

GDP per worker

TFP

% Average



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0

2

4

6

8

10

12

1989 1990 1991 1992 1993 1994 1995

Percent

Call rate"Normal" BOJ response

Fed counterfactual

15

The BoJs response to Japansrecession

Source: Harrigan and Kuttner (2004)


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Japanese inflation experience1992:2008 Q2

-4

-3-2

-1

0

12

3

4

5

6

7

1992 1994 1996 1998 2000 2002 2004 2006 2008

CPI

GDP deflator

Per cent

QEP period

Domestic Corporate

Goods Price Index

Source: Bank of Japan


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It is not clear that QE feeds into broad

money with banking sector problems

-30

-20

-10

0

10

20

30

40

-24 -18 -12 -6 0 6 12 18 24 30 36 42 48 54 60 66 72

-150

-100

-50

0

50

100

150

200% change oya

UK narrow

(LHS)

Japan narrow (RHS)

Japan broad (RHS)

Months from start of QE

UK broad

(RHS) (a)

% change oya

(a) Excluding intermediate OFCs

Source: Bank of Japan and Bank of England


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An independent central bank can

affect expectations

0

1

2

3

4

5

6

7

8

9

10

1991 1993 1995 1997 1999 2001 2003 2005 2007

US 10Y Bond

JGB-10Y

Money Rate

Deflation scares

%

Source: Thompson DataStream and Bank calculations

Adapted from Kuttner and Posen (2003)


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Chinas Importance as an export

market has risen

0

10

20

30

40

50

60

1998 2000 2002 2004 2006 2008

% Total Japanese Exports

Asia

Asia-ex mainland China

US

Mainland China

Note: Asia includes Oceania, Hong Kong and Macau

Source: IMF Direction of Trade Statistics


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0

10

20

30

40

50

60

70

1998 2000 2002 2004 2006 2008

% Total UK Exports

European Union 27

Euro Area 16

US

European Union ex Euro Area 16

Source: IMF Direction of Trade Statistics

For the UK, the Euro Area remains

dominant


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Canada France Germany Italy Japan UK US Average

Stock Market Capitalisation(a)

1.74 1.12 0.65 0.51 1.02 1.37 1.48 1.13Private Sector Bond Market

Capitalisation(b)

0.31 0.57 0.36 0.60 0.38 0.16 1.30 0.53

Short term Private Sector

Securities(c)

0.11 0.22 0.21 0.01 0.07 0.16 0.26 0.15

Banking Sector

Capitalisation(d)

1.41 1.21 1.20 1.27 1.51 1.90 0.69 1.31Banking Sector

Concentration(e)

0.57 0.55 0.74 0.40 0.54 0.72 0.35 0.55

Banks per Million Persons(f)

2.95 7.90 22.60 12.49 6.66 8.50 31.70 13.26

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Structure of G7 Financial Markets

(a) As ratio of GDP. Data as of end 2008, Source: World Bank Financial Structure Dataset

(b) As ratio of GDP. Data as of end 2008, Source: World Bank Financial Structure Dataset

(c) As ratio of GDP. Data as of end 2008, Source: Bank Calculations and BIS

(d) Deposit money bank assets as ratio of GDP. Data as of end 2008, Source World Bank Financial Dataset

(e) Assets of three largest banks as share of assets of all commercial banks. Data as end of 2008, Source: World Bank Financial

Structure Dataset

(f) Source: Bankscope, IMF and Bank Calculations


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The Japanese private sector maintainedlarge surpluses

-15

-10

-5

0

5

10

15

1992 1995 1998 2001 2004 2007

Corporates Government (a)

External Households

Per cent of nominal GDP

(a) Including public non financial corporations

Based on annual financial year data through 1998 Source: BoJ


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The UK corporate sector has recentlybuilt up an unusually large surplus

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

1988 1992 1996 2000 2004 2008

Per cent of nominal GDP

Japan

UK

Japanese data based on annual financial year data through 1998

Source: BoJ and BoE


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-30

-25

-20

-15

-10

-5

0

1992 1995 1998 2001 2004 2007

Per Cent of nominal GDP

Source: OECD BoP Statistics

U.K.

Japan

While some of the UK surpluses mayfeed into FDI outflowsJapanese

corporates appeared to sit on them


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PPT of Adam Posen on Japan

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