Japan, China See Slowing Growth

Japan and China’s economies continue to deteriorate as more indicators signal a growth slowdown.

In Japan, industrial production failed to meet expectations in February as less Japanese consumers opened their purse strings and spent in the economy. The trend towards rising savings rates and falling consumer spending indicates that the Bank of Japan’s aggressive quantitative easing program is failing to stimulate growth.

Abenomics Stalls

Japan and China’s economies continue to deteriorate as more indicators signal a growth slowdown.

In Japan, industrial production failed to meet expectations in February as less Japanese consumers opened their purse strings and spent in the economy. The trend towards rising savings rates and falling consumer spending indicates that the Bank of Japan’s aggressive quantitative easing program is failing to stimulate growth.

Abenomics Stalls

In 2014, Prime Minister Shinzo Abe stunned the market when the Bank of Japan announced its aggressive QE program would extend to around $700 billion of asset purchases. The program, modeled after the Federal Reserve’s large asset purchasing program in 2012 and 2013, was designed to end deflation, according to Haruhiko Kuroda, Bank of Japan Governor.

Since then, inflation rates have fallen to zero when ignoring the impact of a sales tax hike, which went into effect in April of last year. With tax and volatile goods included, the CPI rose 2% in February, a deceleration from 2.2% in January.

The yen has also lost 19% of its value relative to the U.S. dollar since late 2014, which has lowered consumption further.

Falling Output

Some economists hoped that a weaker yen would kick start exports to the U.S. and other markets, but industrial production fell 3.4% in January, according to new data from the Japan Trade Ministry. That was nearly double the decline analysts had expected, which economists attribute to weaker demand at home and a failure to compete with lower cost goods from South Korea and China abroad.

Production fell for 12 of 15 categories, with inventories rising 0.5% on a fall of exports to other nations.

The fall in output may urge the Bank of Japan to increase its QE program even further to fight deflation. The news caused equities in Japan to fall slightly, as traders debated whether the data would encourage more QE and thus higher equity prices.

China Disinflation

With price growth flattening in Japan, price growth is also weakening in China, where policymakers and bankers have promised to act swiftly to promote growth.

On Monday, People’s Bank of China Governor Xiachuan Zhou said China has “room to act” if inflation falls further, noting that the PBOC would consider both interest rate cuts and its own act of quantitative easing. Chinese prices rose 1.4% in February, accelerating from 0.8% growth in January.  This was far short of the government’s 3% inflation target. As in Japan and the United States, falling energy costs have caused inflation to fall.

In November, China has lowered interest rates while the Chinese government has lowered growth targets. Governor Zhou said the lower growth target has caused job and income growth to fall.