Mises Wire

Is This Why the Bank of Japan Hit the Panic Button?

Only days after stating it was not considering negative interest rates, the Bank turned around and introduced negative interest rates in January.

With so little time between the denial of even considering negative rates and the actual  implementation of rates, one is left wondering if the BOJ was simply lying or if something drastic changed at the bank to impel the change of heart.

It may have been a little of both, since it would be naive to assume a commitment to truth telling on the part of central bankers. On the other hand, the BOJ may have finally gotten a closer look at its fourth quarter data in late January and realized that, in spite of decades of near-zero interest rates, the economy was going nowhere.

Yesterday, Japan released the latest GDP data, and the figures were below expectations.  Bloomberg reports:

Japan’s economy contracted in the final three months of 2015 as the nation struggles to break free of a cycle of expansion and contraction despite more than three years of the Abenomics program.

Gross domestic product shrank an annualized 1.4 percent in the three months ended Dec. 31, following a revised 1.3 percent gain in the third quarter, the Cabinet Office said on Monday. The median estimate of 33 economists surveyed by Bloomberg News was for a 0.8 percent decline.
Here are those numbers with some historical context:  

The -0.4 change is over on the right, and we can see that five of the past ten quarters have shown negative rates of change — in spite of three years of Abenomics and easy money. During the third quarter 2015, the change was positive 1.3 percent, and during the fourth quarter of 2014, the change was 2.5 percent.  

These are annualized numbers, though, and if you’re like me, you like your data presented a bit more simply. 

So, we can also look at the most recent GDP data as a simple year-over-year comparison. During the fourth quarter of 2015, the YOY change was 0.47 percent, which was the smallest growth rate in three quarters. Lackluster 2015 followed 2014 and early 2015 during which GDP’s YOY growth was negative four quarters in a row bottoming out at -1.5 during the third quarter of 2014:  

In this case, the most recent comparison does not dip into negative territory. But the overall trend is there, and it doesn’t speak to the success of Abenomics and its reliance of fiscal and monetary “stimulus.” 


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