Commodity price fall pushes Japan back towards deflation

Economic growth

SHARE THIS STORY

Japan CPI Sept15The combination of ageing populations and declining fertility rates means the world is following the Japanese model into deflation – despite all the efforts of policymakers to artificially induce price rises via their money-printing.  As discussed last November, under the title. “Oil price fall set to push Japan back into deflation“, it was already clear then that the impact of Abenomics had peaked in mid-year.

Inflation had temporarily hit 3.7% after the sales tax increase and yen devaluation.  By November, a panicked Governor Kuroda, head of the central bank, was pushing through an emergency stimulus policy.  But as the chart above confirms, his measures have had little effect.  July inflation was just 0.2%.  The issue is one of common sense:

  • Most policymakers insist on seeing supply/demand balances through rose-tinted glasses
  • They imagine that demand is always constant, if only the right tax and spend policies are adopted
  • They thus ignore the human factor altogether, and claim that 70 year-olds will spend as much as 30 year-olds
  • Yet their own official data confirms what common sense would tell us on this issue

What worries me now, is what happens next?  Japan’s former central bank head, Governor Shirakawa, had an excellent grasp of the economic impact of demographic change.  He was a major influence on our thinking in Boom, Gloom and the New Normal, as he argued that Japan’s:

“Low growth was mainly attributable to demographics, or more specifically, a rapid aging of the population”….

“The implications of population aging and decline are also very profound, as they contribute to a decline in growth potential, a deterioration in the fiscal balance, and a fall in housing prices. Given that other developed countries will face the same problems despite some differences in timing and magnitude, the economic effects of demographics deserve further study.”

Today, the failure of his successor’s policies is confirming the wisdom of Shirakawa’s insight.  70 year-olds are not 30 year-olds:

  • They do not have the income that would enable them to spend in the same way
  • And they do not need to spend the same amount as they already own most of what they need.

Japan’s recent policies have been the equivalent of trying to make water run uphill.  But now China’s New Normal policies are the catalyst for reality to appear.  Today’s chaotic markets are a sign that investors are starting to realise they have been fooled.

It is going to be a very bumpy ride as we return to a world that operates by the fundamentals of supply/demand, and not by central bank stimulus.

PREVIOUS POST

Impact of $25/bbl oil - free pH Report webinar next Tuesday

22/09/2015

The consensus failed to forecast last year’s oil price collapse.  So is today...

Learn more
NEXT POST

US incomes have plateaued since 2001 as Boomers turn 55+

25/09/2015

More and more people are lining up to support our argument that central bank sti...

Learn more
More posts
Pandemic redraws the map
11/10/2020

  Companies have entered a new landscape where the coronavirus has accelerated major paradigm s...

Read
What will happen if President Trump loses the election?
04/10/2020

I spent from September 2015 onwards, during the last US Presidential election, trying to explain why...

Read
Covid fears risk a Great Depression and major social unrest
27/09/2020

Governments spent most of February/March ignoring my warnings here on the dangers posed by the Covid...

Read
The state of the global economy in 2020
13/09/2020

Last Wednesday, I gave the opening presentation for the ICIS PET Conference and looked at whether th...

Read
Reality dawns for business as No Deal Brexit approaches
06/09/2020

I warned before the June 2016 Brexit referendum that Brexit was all about politics, and Boris Johnso...

Read
Global chemical industry – key trends for success in today’s New Normal
02/08/2020

The chemical industry is the best leading indicator for the global economy. On Friday, I had the pri...

Read
Oil prices signal potential end to the V-shaped recovery myth
26/07/2020

Oil prices have moved into another ‘flag shape’ – which previously provided critic...

Read
Bankruptcies now the key risk as hopes for V-shaped recovery disappear
19/07/2020

Governments, financial markets and central banks all originally assumed the Covid-19 pandemic would ...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more