Worried About Inflation? Lessons From Japan

X!nG

While it is common to compare the current US stock market with the Japanese experience in the early 1980’s, there is more to it than a similar market profile. The comparison between the two countries and situations is made in a recent report from Societe Generale titled “Worst Case Debt Scenario“. Both Japan and the US share: Ballooning Public Debt Banking Crisis Property Bubble & Crash Stock Market Crash Low Interest Rates If we expand the US experience to the 2000 market top then we can squeeze in even more similarities. For example, corporate debt crisis, high valuations, and another stock market crash. The only real difference is in the reaction from their respective governments. While Japan was slow to respond to the unfolding crisis, the US government (and the rest of the world) lost no time in enacting expansionary fiscal programs. Having so much in common, then perhaps it would be instructive to use the Japanese experience as a blueprint for what is yet to come for the US. In a word, that would be deflation. With unemployment peaking, it seems illusory to expect inflation in the coming 12 months and hence a higher risk of increasing bond yields. The bond market suggests the real risk is one of deflation, again calling to mind the Japanese scenario. As for the stock market: If we accept the idea of a two-stage crisis (taking as our starting points 2000/01 + 2007/08), we have probably reached a situation similar to that of Japan in the 1990s. This analogy would suggest that we are now exiting a bear market rally, which was fuelled by restocking and fiscal stimulus. If the fiscal incentives boosting auto consumption are reduced, “normal” consumer spending will be unable to pick up the running so long as unemployment remains depressed.

trueself

weigoodone01

源济

bobcat

美、日的情况太不相同了

usamonkey

牛熊

coexist

so interest rate will keep low for a long period

marlin

X!nG

美、日的情况太不相同了
bobcat 发表于 2009-11-25 21:18

Indeed, these two are not the same...

However, great history has taught us that deflation is the ultimate process which can not be stopped whatsoever...

Now, We are just in the middle of this process where it has been temporarily postponed by inflationary hopes...

I may be laughed by all, but, time shall tell...

abaqus

AGA7d

There is a key difference here: Japan borrows domestically and have a huge trade surplus. The domestic savings and an aging population allow the gov to take huge deficit without causing big inflation.

So take some points from JP is OK, but that's about it.

fanshen10

12# AGA7d


应该是不同的, 日本是出口导向的顺差, 美国是进口导向的逆差, 日本是老年化的, 美国人口是增长的, 同样的政策会导致不同的结果.

过山车

12# AGA7d

Cannot agree more! The big institutions of JP is willing to buy JGBs however low the yield is. Will US's foreign debtor do the same to US treasury?

过山车

14# 过山车

Sorry, should be "US's creditors"

ut1984

quix

ding, good article, thanks for writing