Article first published as Deflation Fears Linger for the US, Fed Data Shows on Technorati.
Market analysts are predicting that the US may have to face deflation for the coming one or two years. Consumer confidence has fallen to its 13-month low for August month.
Even though the consumer prices rose by 0.3 percent and food prices and energy costs have gone up consumer confidence dropped as they are generally ignored due to their volatility. Speculations are floating that the US Federal Bank may resort to large-scale debt purchases. Some analysts reject for such case saying the data was not so weak.
Reuters index of consumer sentiment dropped from 68.9 in August to 66.6 in September’s preliminary reading, Reuters said in a report (Go to consumer sentiment graph here). Despite encouraging results posted by Oracle Corp and RIM, the Fed data prevented the stock prices from raising that ended nearly flat.
Fed data showed that the household wealth came down by $1.5 trillion to 53.5 trillion due to high unemployment of 9.6 percent. The household wealth had reached its peak $64.2 trillion at the end of 2007 when the US economy began crumbling into recession.
BBC News | 27 August 2010 | 07:07 GMT
Japan’s core consumer prices index fell for the 17th month in a row in July, underlining the country’s entrenched problems with deflation. The index, which excludes fresh food, fell 1.1% from July last year. Deflation is adding to economic worries in Japan, where the strong yen is making exports more expensive. Japan’s "lost decade" of deflation in the 1990s hit company profits as consumers delayed purchases to await even cheaper deals. The fall in the consumer prices index was slightly bigger than the 1% drop in June.
The Bank of Japan has so far held off from any substantial measures to tackle deflation, forecasting that consumer prices will turn positive in the fiscal year to the end of March 2012. Japan’s government was due on Friday to outline measures to support the economy and contain the strong yen, which hit a 15-year high against the dollar this week and could derail an export-led recovery.
Growth in Japan’s economy slowed to a crawl in the second quarter and analysts see more weakness ahead. The government is considering new stimulus measures including boosting graduate employment and the corporate sector, Kyodo News Agency said late on Monday, after data that testified to slowing growth in Japan’s main export destinations such as the United States and China and a stimulus-driven domestic recovery that has petered out. Against a backdrop of concerted efforts to talk down the yen after it surged to a 15-year high against the dollar last week, quarterly gross domestic product grew just 0.1 percent. That was well below the median market forecast of 2.3 percent and the United States’ 2.4 percent annualised growth in the same quarter. It followed revised 4.4 percent annualised growth in the first quarter, when both exports and a stimulus-driven recovery in consumption contributed to overall growth.
In the April-June quarter the stimulus effects have worn off, leaving exports as the sole engine of growth and with its contribution to growth halved to 0.3 percent. Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa are expected to meet later this week o discuss possible policy responses. Citing government sources, Kyodo said the growth-boosting government measures are expected to include stimulating personal consumption of eco-friendly products, helping new graduates find jobs and revitalizing small and midsize companies, Kyodo quoted the sources as saying.
Reuters | Tue Jul 13, 2010 | 4:59pm IST
Credit rating agencies are growing impatient with Japan’s inability to tackle its ballooning public debt, a task just made more difficult by the ruling party’s drubbing in upper house elections at the weekend. The result means that Prime Minister Naoto Kan’s ruling coalition lost its parliamentary majority so will need help from other parties to get bills, such as on tax reform, passed. Greece’s debt problems have highlighted the fiscal woes of Japan, but is the world’s second-biggest economy really facing a Greece-like debt crisis?
HOW BAD IS JAPAN’S FISCAL POSITION?
By certain measures, Japan’s debt load is worse than that of Greece. Japan’s outstanding long-term government debt is set to reach 862 trillion yen ($9.72 trillion) at the end of March 2011, or 181 percent of the country’s gross domestic product, the Ministry of Finance says. If short-term debt is added, Japan’s liabilities will hit 197 percent of GDP this year and 204 percent in 2011, the highest among advanced economies and far worse than Greece’s debt-to-GDP ratio of around 130 percent, OECD figures show. Similarly, the IMF warned in May that Japan was growing more vulnerable to sovereign risk, estimating the country’s gross debt-to-GDP ratio at 227 percent in 2010.
WHY DOES JAPAN HAVE SO MUCH DEBT?
Tokyo’s debt burden is a legacy of massive government spending in the 1990s to support the economy as it stagnated following the bursting of an asset bubble. An ageing population has meant rising social welfare costs add considerably to government spending. Some analysts say Japan’s net debt provides a more accurate picture of the country’s indebtedness. This measures gross debt minus government assets such as public pension fund reserves and foreign reserves. On that basis, debt will reach around 105 percent of GDP in 2010, the highest among major economies, the OECD says. Still, some analysts say Japan would not be much worse off by that measure than Belgium and Italy were in the 1990s, and both nations avoided a sovereign debt crisis.