Brad Setser

Follow the Money

Cross border flows, with a bit of macroeconomics

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Meanwhile, in Japan, Household Consumption Continues to Fall

by Brad Setser

In news that you may have missed while strategizing about Article 50, thinking about ways to recapitalize Italian banks or pondering the future course of the renminbi …

Japan’s May household consumption data, based on the demand side household data, surprised to the down side.* And the trend here is, alas, clear. Real household consumption has fallen ever since Japan started its fiscal consolidation in 2014. 2016 does not look to be any different: 2016 consumption is running about 6 percentage points lower than in 2013.


I consequently do not think there is any real mystery as to why Abenomincs is floundering a bit.

It is not primarily a result of the difficulties the Bank of Japan (BoJ) faces keeping the yen weak without breaking the G-7 currency peace through direct intervention. A weak yen on its own did not prove to be a boon to internal demand in 2015.

Nor is it in any simple way a function of a failure to deliver on structural reforms: I agree with Larry Summers’ recent comment that many “OECD standard” reforms have an ambiguous impact when deflation is more of a concern than inflation.

Rather, Japan’s troubles stem from a series of policy choices that had a fairly predictable negative impact on household demand.

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