In a speech to the Japan Society in New York on Wednesday, Haruhiko Kuroda, governor of the Bank of Japan, said:

"The price changes this year present a clear contrast with those last year. For example, in April this year, the price of ketchup was raised for the first time in 25 years — I should note that this price hike was not due to purchases by the Bank of Japan."

While the price of ketchup rose by 3.3%, government data showed core inflation, excluding volatile fresh food prices, was flat year-on-year, resulting from lower fuel and other energy costs.

Household spending also dipped 0.2% in July after sliding 2.0% in the previous month, the government said.

The two straight declines follows a sharp rise of 4.8% in May. In the second quarter, GDP shrunk by 0.4% and 1.6% on an annualised basis.

Shinzō Abe became Japan's prime minister for the second time in Dec 2012 and on 4 Apr, 2013, the Bank of Japan with Kuroda as the new governor, announced a massive quantitative easing (QE) programme to end a decade and a half of deflation. It said: “The Bank will achieve the price stability target of 2% in terms of the year-on-year rate of change in the consumer price index (CPI) at the earliest possible time, with a time horizon of about two years.”

That target has been revised to April 2016.

 

AFP reports that more than half of Japan's exports are to Asia and any hit to China is bound to affect other countries in the region, according to analysts at French bank Natixis.

"If we consider how intertwined other Asian countries are with China, it is obvious that China's economic performance is even more important to Japan than that of the US, at least as far as trade is concerned," they said in a report this week.

"If China continues to deliver negative in terms of growth and/or financial markets, Japan cannot but be affected."

“Japan’s economy isn’t looking good,” Yoshiki Shinke, an economist at Dai-ichi Life Research Institute, told Bloomberg News.

“Private consumption and exports are much weaker than what the Bank of Japan saw a few months ago.”

Core consumer prices are likely to remain below year — earlier levels “for the foreseeable future” due to the decline in oil prices, Shinke said.

“There’s a good chance for additional monetary easing in October,” he added.

However, on a positive note, the jobless rate dipped 0.1 point to 3.3% in July, according to separate figures also released Friday.

A labour index also published Friday was at its best level in 23 years, at 121 job offers for every 100 people looking for work — Japan's labour market has a huge number of low-paid temporary workers and lifers with permanent jobs (Finfacts.) David Piling, Asia editor of the FT, wrote in Sept 2014 that: "Casualisation of the workforce is stifling the reflationary experiment."

Companies are averse to both raising wages or hiring married women.

In its annual report in July on Japan, the IMF said: "In late 2012, Japan launched 'Abenomics,' an economic revival plan to exit from decades-long deflation, low growth, and rising public debt. The three-pronged strategy of aggressive monetary easing, flexible fiscal policy, and structural reforms promised to be a clear break from previous incremental efforts. So far, the pace of real GDP growth has remained similar to the post-bubble period at about 1%, and deflation risks remain."

According to the Japan Times, the bubble bust in 1990:

"Economic historians usually date the beginning of the bubble economy in September 1985, when Japan and five other nations signed the Plaza Accord in New York. That agreement called for the depreciation of the dollar against the yen and was supposed to increase US exports by making them cheaper.

But it also made it cheaper for Japanese companies to purchase foreign assets. And they went on an overseas buying spree, picking off properties like the Rockefeller Center in New York and golf courses in Hawaii and California.

By December 1989, the benchmark Nikkei 225 stock average had reached nearly 39,000. But beginning in 1990, the stock market began a downward spiral that saw it lose more than $2tn by December 1990, effectively ending the bubble era."

Japan's current gross debt GDP ratio is 245% — 16 times tax revenues — and the IMF has warned that it could exceed 300% in 2030. In 1990 Japan had a gross debt ratio of 65.1% and a net debt of 7.3%. 

According to the Economist: "The central bank is currently buying about ¥80tn ($670bn) of long-term Japanese government bonds (JGBs) a year, or twice the annual issuance. It now holds over ¥300tn of JGBs, or nearly a third of all outstanding bonds."

In his speech in New York, the BoJ governor was optimistic that deflation can be defeated:

"With the prospect of overcoming deflation in sight, efforts to raise the growth potential of Japan's economy should gather steam. The government is currently implementing various regulatory and institutional reforms as part of its growth strategy. I am aware that many have found previous proposals to raise Japan's growth potential disappointing. In hindsight, it is clear that there has been a lack of sufficient incentive and impetus to make change happen. Firms had few incentives to grow and simply removing obstacles to growth had little effect. Partly because of this, the political will to remove such obstacles was also weak. But this time is different. Since Japanese firms now believe that deflation is over, there will be strong incentive for change. Under deflation, sticking to the status quo was a reasonable business strategy. This is no longer the case and, aware of the drastic changes that have occurred in the domestic business environment, a growing number of Japanese firms are now taking action."

The FT said the reference to ketchup "was a sly reference to advice from an American policymaker in the early 2000s — the remark is often attributed to Ben Bernanke but more likely due to then Treasury undersecretary John Taylor (the Stanford economist known for the Taylor Rule) — that the BoJ could even buy ketchup if it needed a way to push up the price level.

But Mr Kuroda was illustrating an important point: although the fall in commodity prices has dragged overall Japanese inflation down, the cost of an increasingly wide range of domestically produced goods is on the rise, as slack in the economy diminishes."

Living in unique economic/ financial times; Interest rates at lowest in 5000 years