posted November 30, 2015
Japan’s 5th Recession in 7 Years–Who’s Next?

This past week it was officially announced that Japan slipped into recession yet again—its 5th since the global crisis of 2008-09.

What does this mean—not only for Japan but for emerging market economies from Latin America to Asia; for the economic ‘hard landing’ apparently underway now in China; and even for Europe and the US?

The latest economic collapse in Japan—the third largest economy after the US and China— comes despite Japan’s massive ‘quantitative easing’ (QE) money injection program introduced by its central bank, the Bank of Japan, in the spring of 2013. That initial program provided more than $650 billion a year in Bank of Japan buying of corporate bonds and stocks—i.e. money that went directly into the pockets of bankers and investors in Japan and globally.

When the initial $650 billion was quickly followed by Japan’s 4th recession less than a year later, in the spring of 2014, it was raised to an estimated total of $1.7 trillion. That was followed once again within months by yet another 5th recession in 2015: Japan’s GDP fell by -0.7 percent this past March-June and another -0.8 percent July-September.

The continued failure of QE and free money to resurrect Japan’s real economy has nevertheless resulted in recent months in calls for the Bank of Japan to buy even more corporate bonds, stocks, and other private securities—illustrating the strange logic that, ‘if a multi-trillion dollar free money (QE) program fails, the solution is to provide even more of the same failed policies’.

But has QE and free money for banks, corporations and investors really failed? The real question is ‘failed for whom’?

Whose Recession?

While central bank subsidy programs everywhere—i.e. QE, zero rates, etc.—have clearly failed to generate much real economic recovery, they certainly have benefitted banks, corporations, and wealthy investors. In the case of just Japan, since spring 2013 its stock markets have risen by 70 percent. Corporate profits have doubled. And Japan corporations now sit on a cash hoard of more than $3 trillion, which they refuse to invest in Japan, in decent paying jobs, or to raise wages.

In contrast to rising stock prices, profits and corporate cash piles, median real wages continue to fall at a rate of 2 percent or more a year, as they have since 2009. Most of the jobs created in Japan in the past few years—as in the US and Europe— have been part time and temporary and therefore low paid. Japan’s ‘contingent’ (part time/temp) labor force is estimated today at about 38 percent of all employed. Many of Japan’s better paid manufacturing jobs have been offshored to China. Facing these dismal prospects, not surprisingly Japan workers have been leaving the labor force. The fixed incomes of retirees are also declining. Further exacerbating all the above is the sharp rise in inflation from imports for Japan households and consumers. A secondary effect of Japan’s QE and monetary policies has been to dramatically reduce the value of Japan’s currency. The Yen in recent years has fallen almost 30 percent against the US dollar; and up to 50 percent against other Asian and emerging market currencies, including China’s. That means Japan prices for imports have risen sharply, further reducing real wages and incomes for workers, retirees, and average consumer households.

Prime minister, Shinzu Abe’s, answer in 2013 was QE and free money for banks and investors and then austerity and taxes on consumers in 2014. And when the 4th recession hit in spring 2014, his answer was not only to expand QE but to introduce tax cuts for corporations within months after he just raised taxes on consumers. To offset wage and income decline Abe’s answer was to plead with Japanese corporations to raise wages voluntarily—a plea which they quickly and arrogantly dismissed publicly as ‘unrealistic’.

Now that another recession has just occurred, last week Abe desperately announced a token adjustment to Japan’s policy of fiscal austerity, by calling for an increase in subsidies to the tens of millions of retired Japanese on fixed incomes who have had no income gains for years and in some cases for decades. He also announced a plan to raise minimum wages. But whether this in fact occurs remains to be seen. If it does, it will represent a reversal of a 25 year history of fiscal austerity for most of the population.

Who’s Next?

What Abe’s monetary policies have accomplished is to set in motion, and then intensify, global currency wars that are devastating emerging market economies in particular.

Japan’s initial 2013 QE policy pushed emerging markets’ currencies lower, as the latter tried to compete with Japan for global exports share. But Japan QE came just as deflation in global commodities prices also began depressing emerging markets in 2013-14 also causing their currencies to decline; and just as the US central bank, the Federal Reserve, announced it’s a long term policy to allow US rates to drift up. This ‘triple impact’ of Japan QE, US interest rate shift, and global commodity deflation accelerated the collapse of emerging markets’ currencies.

Then Europe launched its own QE early in 2015, thus adding a fourth factor intensifying currency collapse. Japan’s QE no doubt had a role in the Eurozone’s decision to devalue the Euro by means of QE. Emerging market economies now faced ‘competition by dueling QEs’ from Europe as well as Japan. Meanwhile, as all parties intensify their fight over a total global trade pie that continues to contract in growth rate terms, the volume of world trade has slowed for the third year in a row in 2015 and by some estimates is now even flat.

For emerging markets, collapsing currencies mean capital flight, and a subsequent decline in their real investment and real growth. Foreign investment into their economies has been shrinking as well. To stem the outward flow and attract new capital, interest rates have been raised by some emerging markets, further slowing their economies. Unemployment has followed, further compressing wages and consumption. Meanwhile, falling currencies have meant rising inflation for imports, and thus even further declines in real wages, income and consumption, and therefore economic growth.

Overlaid on all this is China, which recent data shows is clearly heading for a hard landing. According to a growing number of independent estimates, its economy is not growing at the official 6.8 to 6.9 percent GDP rate but at a much lower 4 to 5 percent rate. New data out of China last week show China’s industrial production and profits have entered a period of major contraction. Its stock markets in November are now begun reflecting this, as China stock prices once again—as during last August—have begun another major contraction phase.

Japan will inevitably introduce yet another QE, likely sometime in 2016, after it waits for the US to raise rates in December 2015. Europe undoubtedly will follow Japan with more QE, maybe even before. And with its own economy slowing faster, China will be forced to devalue its currency further at some point as well.

Thus Japan’s latest recession promises to continue the global currency wars by precipitating yet another Japan QE, another similar response by Europe, and an eventual further devaluation response by China.

And what will the US do? Raise rates next month, of course—and experience yet another GDP contraction in early 2016, as it has four times already since 2011.

Jack Rasmus is author of the just published analysis of the global economy, ‘Systemic Fragility in the Global Economy’, Clarity Press, November 2015, available at:, at, or from Amazon. (For a more in depth analysis of Japan’s economy, read Chapter 5, ‘Japan’s Perpetual Recession’, of ‘Systemic Fragility in the Global Economy’.

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