Problems in Japan send a warning to the UK economy

Clearly, while some of the many economic problems are both historic and specific to Japan meaning they are unlikely to be repeated in western economies huge deficits built up by economies such as the US and Britain could provide grounds to believe that post initial recovery signs now being seen some economies could be heading for a long period of stagnation.

Back in Japan, whether elections this weekend that may finally end the very long period of Liberal Democrat power also bring about the prospect of radical change in how Japan adapts the internal economy from here on is far too early to say.

The hope will be that they will bring about significant change though it must be remembered that Japan's domestic problems are so deep seated they will require enormous political effort and goodwill if the nations long period of misfortune is to be turned around.
Whatever, it may take at least another five years.

Meanwhile, Britain apart and where inflation is unlikely to fully depart in the foreseeable future, for other major western economies the jury will remain out for some while as to whether deflation really is potentially a serious long term problem.
Even so, Japan's continuing woes are a timely reminder of the danger of ignoring the perils of others and that we must also learn from Japan's unfortunate economic experience since 1992.

Since the first early signs that the 30-year miracle period of growth was coming to an end emerged back in early 1990's various Japanese governments have attempted to kick start the fast dying domestic economy into life.

For the most part they have failed. Sure, despite the adverse currency affects caused by rising Yen value Japan somehow managed to keep the export momentum going whilst at the same time it sensibly built an industrial empire abroad that would, it hoped, compensate. In part this worked and it has to a great extent I suppose been the saving grace of Japan through the long years of moribund domestic growth. Back home though it was a very different story.

Nothing it seemed - absolutely no amount of fiscal stimulus or anything else could get the Japanese population to spend. Year after year household spending has remained pretty moribund. To the Japanese consumer it seemed battening down the hatches meant not only nailing down the lid but also putting on the padlock and throwing away the key.

Yes, they continued to buy the necessities of life and despite the ever rising number of jobless; despite being visible beneath the surface, poverty was never quite that visible in big cities such as Tokyo as it often was to be seen in other countries. Put that down to the survival instinct if you like - the sheer stubbornness of the Japanese and also the quite amazing self discipline that translated itself into realisation of the need to save rather than spend.
The Japanese governments continued failure to boost the domestic economy has been made all the worse by a global recession that provided a double whammy hit. Suddenly no-one wanted Japan's exports and neither did they want goods produced by thousands of Japanese companies that had been created abroad.

Hence we see back home that Major Japanese companies have gone through another big round of job cuts leading to the historic all time high 5.7 per cent in the number of those unemployed. No surprise then that unlike UK consumers who appear to prefer to close their eyes to what is going on around them continuing to borrow and spend what they haven't got, the first reaction of the thrifty Japanese is to further tighten household spending.

If the matter wasn't quite so serious in terms of reviving national growth particularly given that the government has poured yet another Yen 25 trillion into the economy this year in an attempt to stimulate household domestic spend one might actually feel a touch sorry for Prime Minister Taro Aso.
Best not to do that though for while Aso and his predecessors have done much to improve Japan - including much to sort out and revive a dangerously weak Japanese banking arena - they have done all too little to address the far too high level of state and local government spend. In summary, it may be right to say that Japan's problems are as much about government and state spending as they are about coping and adapting to the global economy.
Given the near 20-years that, for the most part, the Japanese economy has now been in the doldrums it is to the credit of the various governments that political stability has at least essentially remained unaffected.
Well, not seriously at any rate. Indeed, it is worthy of note that the LDP has been in power in Japanfor no less than 54 years since 1955. Not for much longer by all accounts though as most Japanese political pundits appear to be suggesting that the DPJ will likely win a landslide in the lower house elections due this coming weekend.

We will see but whoever wins, for Japan this may be the final chance to adapt, change, strengthen and revive itself before the might and growth of the Chinese and other emerging economies such as Indiaprovide a very different set of problems to solve.