I have long been negative on Japan. The country’s gross domestic product (GDP) growth contracted for the third consecutive quarter in fourth quarter 2012, shrinking by an annualized 0.4%; this was well below the estimates that actually called for growth of 0.4%, according to Japan’s Cabinet Office. What is puzzling is that I have been hearing about the expected recovery in Japan for years, and each time, I question the validity of the optimism. In my view, the country will continue to face tough obstacles. Even after new Prime Minister Shinzo Abe suggested he was going to aggressively spend to get the country’s economy back on track, I was not optimistic. Shinzo Abe is looking to add significant stimulus, including a whopping $2.4 trillion, over the next 10 years to try to drive Japan’s GDP growth out of its comatose state. (Source: Schuman, M., “Will Japan’s New Prime Minister Start a Debt Crisis?,” Time December 17, 2012, last accessed February 19, 2013.) But the problem is that the export demand for Japanese-made goods is soft. A major part of the reason is the emergence of China as the manufacturing superpower in Asia; Japan has struggled with its GDP growth. The new stimulus sounds great, but there’s a problem: the country’s debt levels represent some of the highest in the world. The country’s debt as a percentage of its GDP was a colossal 208% in 2011 and the worst in the world, according to the International Monetary Fund (IMF). Greece with its financial crisis was comparatively better at 161%, and the U.S. with its crippling debt levels was relatively strong at 103% in 2011. (Source: “List of Countries by Public Debt,” Wikipedia, last accessed February 19, 2013.) The problem is that Shinzo Abe wants to spend the country into a financial abyss in order to pump up the country’s GDP growth, and there’s no guarantee it will work. Japan continues to be in an economic abyss, void of any GDP growth. The use of expansive fiscal and monetary policy in Japan has probably helped to prevent a deeper recession, rather than driving GDP growth. The country’s interest rates are already at zero, so there’s little space to maneuver. Given interest rates have been at zero percent since 2010, the failure of the country’s GDP growth to rebound is puzzling. Consider that the high point for interest rates since 2005 was a rate of just over 0.5% in 2007 (Source: “What is the Japanese yen (JPY)?,” GoCurrency web site, last accessed February 19, 2013.) That’s seven years with extremely low interest rates, and not much has improved with the country or its GDP growth. The Markit/JMMA Japan Manufacturing ... Read More