Japan’s NIRP paradox: Consumer spending drops in Q4

Perhaps it was insider knowledge that consumer spending for the 4th quarter of 2015 would be much worse than analysts expected that drove Japan’s central bank head Haruhiko Kuroda to out of nowhere implement a new negative interest rate policy (NIRP), but nevertheless, this data which was reported on Feb. 15 puts the 3rd largest economy in a difficult paradox.

NIRP is an interest rate program normally used as a last resort to force account holders to spend rather than save their money in an effort to artificially inflate spending and GDP.  However, implementation of this type of policy assumes many things, including that consumers actually have the money to spend, and that economic conditions are strong enough to ensure a constant flow of money going into goods and services which drives up money velocity.

And perhaps even more, it assumes that savers will not wake up to the fact that they are being coerced into spending, and will instead choose capital flight outside the Japanese economy altogether.

Japan’s economy shrank 0.4 percent between October and December, compared with the previous quarter. This raises questions about Prime Minister Shinzo Abe’s financial stimulus policy to lift the world’s third largest economy out of stagnation.

On an annualized basis the economy contracted 1.4 percent during the period. Economists had predicted a 1.2 percent fall, but actual numbers are worse because of a sharp decline in consumption.

Private consumption, which makes up 60 percent of Japan’s GDP, dropped 0.8 percent, which is more than the predicted 0.6 percent decline, a sign the government’s stimulus policies have so far failed to make the Japanese spend more.

“The downside risks to Japan’s economy are likely to increase as the yen’s gains may damp capital spending and exports, and private consumption also is looking weak. There’s no clear driver to support Japan’s economy,” Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance in Tokyo told Bloomberg.

Wages in Japan haven’t grown more than one percent in any year since 1997, and actually shrank in the last four years when adjusted for inflation. - Russia Today

Central banks around the world are in virtual crisis mode, with Japan, Switzerland, and Sweden already having negative interest rate polices, with many more economies, including the United States, dangling NIRP over their citizens as the ongoing deflationary recession bites into bank and corporate liquidity.

For anyone to publicly say global economies are strong or well into ‘recovery’ is a flat out lie and deception when academics, pundits, and even bank analysts decry the need to ban cash and implement new rounds of quantitative easing (money printing).  And with the world’s 3rd largest economy already well into negative interest rates and having bought up most of the bonds and equities their markets have to offer, it is only a matter of time before a financial crisis breaks on the island nation, and domino’s its way Westward into both Europe and the U.S..

Kenneth Schortgen Jr is a writer for Secretsofthefed.comExaminer.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.

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