It's an open secret Japan's economy is witnessing a Fraudulent Gross Domestic Product type recession.

James Summers Co-Chief Operating Officer of Acom Alliance, in Tokyo has this to say:

“Governments can create and reschedule economic growth - it's not the most difficult thing to do. By introducing certain policies, governments can always reschedule growth - that's exactly what Japanese authorities have done. The Gross Domestic Production of an economy is a Keynesian creation which emphasizes on consumption. Since Japan has been witnessing a slump in consumption, it appears that a technical recession has emerged.”

Recently, the Japanese legislators announced a 3 percent hike in Japan's consumption tax.

James Summers continued: “To save themselves from having to pay increased taxes, Japanese consumers rescheduled their purchases. They did their purchasing ahead of the increase in the taxes. 

This pushing of consumption led to an increase in growth. However, once the new tax structure was put in place, the Japanese citizens withdrew from purchasing. This led to the emergence of a false notion revolving around slow growth - this false notion is being read as recession.”

  

Keynesian economists are baffled by the changes in purchasing power of Japanese citizens only because they are not taking into account the role that the hiked taxes have played.

Japan's dwindling economy has been attracting the attention of economic pseudo-intellectuals from world-over who have been putting their limited knowledge of Economics to understand the decisions being taken by Japanese people every day. Their core approach is to study GDP as the indicator and solution of all problems ailing some of the world's biggest economies. These pundits are not willing to move beyond the notion of export-led growth and register any other variables as indicative of economic growth.

Megan McArdle, the famous journalist and blogger, recently claimed. “Better policies will not be able to save Japan from the recession. Japan is witnessing increased competition among exporters and this combined with country's demographics will make all policies pointless.” she says.

McArdle is not the first one to be confused by the concept of increased exports. Many economists, since long back, have been studying increased global production and growing exports as a sign of weakening growth. However, this is a flawed concept. As a matter of fact, increased global production and increased exports are good for closed world economies like Japan.

What McArdle and those of her ilk miss is the most important economic truth: things are produced to be consumed. Thus, there is an invariable connection between export and import to export is to import. When a country's exports increase, there is an automatic increase in the imports as well. This happens because with an increase in growth, people's gross income increases and hence, their purchasing power increases as well McArdle and her colleagues easily ignore this important fact. 

They, instead, choose to believe that economies like China, which are registering an export-based growth, is full of people who are incessantly working to increase exports without worrying at all about their personal standard of living and that an increase in export has not contributed to the increased growth.

Summers summarized by saying: “Export-based growth and other such Keynesian enablers stand in stark contrast with the reality. As a matter of fact, if you observe real life, these concepts begin to appear unrealistic on their own. China is not an underdeveloped economy anymore - its cities are populated with shops that import and sell products from around the world, and its citizens are spending money to buy these products. The purchasing power of its citizens has increased sharply in the last few years. There was once a time when China and its people suffered - the conditions in which Chinese lived were horrendous. However, more recently, in China, colonies of homes and apartments have come up in every corner. The Chinese have been able to afford such a high standard of living owing only to their increased exports.”

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Japanese Business Sentiments Appear Bullish

The Bank of Japan conducts a quarterly business confidence poll called the “Tankan Survey” which sheds light on the status of the Japanese economy. The Bank declared recently that this is the first time in almost two years that the Tankan Survey has exhibited some positive signs.

The big manufacturers' index also registered a sharp growth between April and June and ascended to plus 4. This is a big change from the previous quarter when it was minus 8. These are positive signs that are reaffirming the faith of businessmen in the Japanese economy.

According to the survey, the large Japanese manufacturers are now doing their bit to boost the economy. If the reports are to be believed, large Japanese manufacturers are planning to expand their capital spending in the present financial year and pump money into the system. Financial analysts believe that this will most likely impact the economy in a positive way.

The Japanese government has also been making visible efforts to stimulate the economy. They have adopted an aggressive monetary policy to boost the economy. The government has recently released a fiscal stimulus to push Japan's stagnant economy. Market analysts and observers who have been keeping their eyes fixed on the Japanese economy say that the Prime Minister Shinzo Abe's 'Abenomics' is finally beginning to show some concrete results. However, it is too soon to draw firm conclusions.

James Summer, Global Co-Chief Operating Officer of Equities with Tokyo’s Acom Alliance, says," The Tankan survey affirms the fact the business sentiments are turning positive in Japan. The decline in the value of Yen and a steady economic recovery has won over the faith of Japanese manufacturers. They look unaffected by the more recent market turbulence and are willing to invest in the economy."

He further added," Japan is also showing more positive signs. The industrial output has gone up. Even if only mediocre, the net exports are also showing growth. With the imminent tax hike, people will buy and hoard things which will lead to an increase in public consumption. And alongside all of this, public works are expected to grow as well. These economic signs combined with the positive results that the 'Abenomics' has yielded, has reaffirmed the faith of Japanese firms in their economy. 

If Japanese businesses increase their investments, the Japanese economy will come back on the right track sooner rather than later."

Yen has been supportive

Among the various measures that the Japanese government took to pull the economy out of deflation, one was doubling the inflation target. The Central Bank of Japan aims to achieve 2% inflation. This may seem a little too ambitious, but given the present scenario, it is certainly the right step to take.

The economic crisis in Japan has prevailed for over two decades now In fact, the country was struggling badly before Abe's term. Not only has Japan been fighting with declining consumer prices, deflation has also become a cause of concern. This is when most other countries in the region are thriving well and making economic progress.

The tax hike has led Japanese people to put off their purchases until later. People are delaying their purchases in the hope of getting better deals later. Not just that, the fear of an imminent crisis, has forced them to save their money. This has directly affected Japan's domestic consumption which has gone down considerably.

However, the Bank of Japan (BoJ) has been taking measures to improve the economy and fight people's fears. The BoJ recently, doubled the country's money supply with an aim to counter deflation. It has also lowered its interest rates.

The BoJ believes that with more money going into the system, Japanese businessmen and consumers will have extra money to spend on commodities -- they will make purchases that they have been purposely delaying. This will, in turn, lead to an increase in the demand of supplies. Since demand and supplies are directly co-related, the BoJ is hoping that an increase in demand will also lead to an increase in prices.

However, these recent measures taken by the BoJ have had a direct effect on the Japanese currency. As a matter of fact, since past November, the Yen has gone down by almost 25% against the Dollar.

Source: James Summer, Global Co-Chief Operating Officer of Equities - Acom Alliance

Contact: https://acomalliance.com