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February 15, 2016 | Japanese Economy Shrinks, Yen Weakens, Nikkei Soars Over 1,000 Points

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

For the 4th time in seven quarters the Japanese economy shrank. It appears Japan may be headed for another recession. In response, Prime Minister Shinzo Abe may double down with his Abenomics policies that have clearly failed. That idea was enough to propel the Nikkei up 1,070 points.

Japanese Economy Shrinks Again

The Wall Street Journal reports Japan’s Economy Shrinks Again in Fourth Quarter.

Japan’s economy shrank again in the fourth quarter, the latest confirmation that Prime Minister Shinzo Abe’s growth program is sputtering.

The contraction, the fourth in seven quarters, comes at a crucial time for the prime minister’s economic policy program, known as “Abenomics,” and could lead to calls for further monetary and fiscal stimulus.

After Mr. Abe took office in late 2012 declaring that “Japan is back,” economic growth has been intermittent and wage increases have been negligible. In addition, the primary gauge of inflation is languishing around zero.

The main cause of the slowdown in the fourth quarter was a decline in consumer spending, according to the government. Private consumption fell 3.8% on an annualized basis. Unseasonably warm weather likely caused people to buy less winter clothing, while sluggish wage growth also kept pocketbooks closed.

Japan’s consumers have been tight fisted since a sales-tax increase in April 2014. Paychecks failed to keep pace. Including the effects of inflation, wages fell 0.9% last year.

Exports unexpectedly fell during the latest quarter, by an annualized pace of 3.4%. Slower sales of smartphones in China sapped demand for equipment in Taiwan and South Korea. Shipments of mining equipment to the U.S. also slumped as companies shelved shale-gas projects because of depressed oil prices.

Japanese GDP

Japan GDP

Yen vs. US Dollar

Yen Daily

The Yen is off just a tiny bit over the past few sessions, weakening from 110.98 per dollar to 113.72 to the US dollar.

The weakening Yen and prospects of another Japanese recession, coupled with the likelihood of more failed Abenmomics was enough to send the Nikkei soaring.

Nothing succeeds like repeated failure.

Mike “Mish” Shedlock

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February 15th, 2016

Posted In: Mish Talk

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