Japan’s Lost... Two Decades?

A flurry of news has been coming out of Japan today, sparked by the announcement of its quarterly decline in GDP. Japan’s GDP contracted 3.3% for a seasonally-adjust annual change of -12.7%. The thinking is, Japan’s recovery from the “lost decade” was heavily reliant on a world-wide spending spree, which stumbled last quarter. Also, the yen is strong, even against the U.S. dollar, attributed to the unwinding of the yen’s use as a carry currency, since more of it is now needed to repay Japanese banks than is lent internationally. So it has become scarcer abroad. A strong yen has exports hurting.

Consistent with the decline in GDP, industrial production is decreasing and unemployment rising at the fastest rates seen in decades. Extensive measures have already been enacted over that "lost decade" to stimulate economic activity—which leaves policymakers, with elections soon, at a loss for further interventions.

Japan’s path to economic recovery is not one we want to follow.