japan’s lost decade: from crisis to recovery1 japan’s lost decade: from crisis to recovery...
TRANSCRIPT
11
JapanJapan’’s Lost Decade: s Lost Decade: From Crisis to RecoveryFrom Crisis to Recovery
IstanbulIstanbul
October 6, 2009October 6, 2009
James GordonJames GordonSenior AdvisorSenior Advisor
Asia and Pacific DepartmentAsia and Pacific Department International Monetary FundInternational Monetary Fund
22
We revisit JapanWe revisit Japan’’s s ““lost decadelost decade””
for for potential insights about the global outlookpotential insights about the global outlook
My presentation looks back and discusses:My presentation looks back and discusses:1.1.
Three recovery attempts during JapanThree recovery attempts during Japan’’s crisis:s crisis:
1997 1997 ––
recovery derailed by Asia Crisis.recovery derailed by Asia Crisis.
2000 2000 ––
recovery foundered againrecovery foundered again
2003 2003 ––
recovery sustainedrecovery sustained
2.2.
What was different about the third episode?What was different about the third episode?
Next presentation will discuss implications Next presentation will discuss implications of Japanof Japan’’s experience for current global s experience for current global outlook and policies.outlook and policies.
33
JapanJapan’’s crisis spanned a dozen years with s crisis spanned a dozen years with three phases of downturn and recoverythree phases of downturn and recovery……
-8
-6
-4
-2
0
2
4
6
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Phase 1: Crisis outbreak and fragile recovery followed by withdrawal of fiscal stimulus.
Phase 2: Renewed stress and 2nd recovery attempt followed by monetary tightening.
Phase 3: Renewed stress followed by sustained recovery as private demand supported by financial and corporate restructuring, and export boom to China
Asian crisis Dot-com crash
Phases in Japan's Banking Crisis(Real GDP growth; in percent)
Source: Haver Analytics.
44
Production and labor market indicators tell the same tale Production and labor market indicators tell the same tale of two incipient pickups followed by a sustained of two incipient pickups followed by a sustained
recoveryrecovery
80
90
100
110
1990
M1
1992
M4
1994
M7
1996
M10
1999
M1
2001
M4
2003
M7
2005
M10
1
3
5
7Industrial production (1990=100)
Unemployment rate (RHS)
Phase 1 Phase 2 Phase 3
Source: Haver Analytics.
Japan: Industrial Production and Unemployment
55
What did the What did the ““Heat mapsHeat maps””
show about the show about the recovery at the time?recovery at the time?
Before (Mar 97) After (Sept 97) Before (Jun 00) After (Dec 00) Before (Jun 03) After (Dec 03)Trade-related
Inventories 2 -1 -2 -1 -1 -1Industrial production 2 -1 1 2 1 -1Exports 1 -1 1 -1 2 2
FinancialTed Spread -1 1 -1 -1 -1 -1Financial stress index -1 -1 -1 -1 1 -1Asset prices -2 -1 -1 -2 1 1Private credit -1 -1 -1 -1 -1 -1
Private Domestic DemandConsumer confidence -1 -2 1 -2 1 -1Retail sales 2 -2 -1 -1 -1 -1
Unemployment rate -1 -2 -1 -2 -1 -1
Aggregate weekly hours worked -1 -1 2 2 1Business confidence 1 -2 -1 -2 1 -2
Building permits/housing starts -2 1 -1 2 1 1
The Three Phases of the Lost Decade: Recovery Heatmaps
Japan: First Recovery attempt Japan: Second Recovery
attempt Japan: Sustainable Recovery
Green Shoot The indicator is improving for at least 2 consecutive months.
Recovery The indicator is improving for at least 4 consecutive months.
Stabilizing The indicator has improved for one month only, or still deteriorating but at a slower pace than before.Deteriorating The indicator is deteriorating, and at a faster pace than before.
66
Episode 1: signs of recovery allowed fiscalEpisode 1: signs of recovery allowed fiscal stimulus to be withdrawn stimulus to be withdrawn ----
then Asian crisis struck.then Asian crisis struck.
-2
-1
0
1
2
3
1990
1991
1992
1993
1994
1995
1996
1997
1998
-4
-2
0
2
4
6
Fiscal stimulus (percent of GDP) 1/Real GDP growth (RHS)
Consumption tax hike + Asian crisis
Sources: Ministry of Finance; Cabinet Office; and IMF staff estimates.1Defined as the change in structural balance
Fiscal Stimulus and Growth
77
Episode 2: economy on the mend again, but reversal Episode 2: economy on the mend again, but reversal after global IT crash after global IT crash ––
policy stimulus reintroducedpolicy stimulus reintroduced
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
Jan-
99
Aug-
99
Mar
-00
Oct
-00
May
-01
Dec
-01
60
80
100
120
140
160
180Target rateNikkei 225 (1985=100), RHS
Japan: Policy Rate and Stock Market Index
Source: Haver Analytics.
88
Episode 3: only at third attempt in midEpisode 3: only at third attempt in mid--2003 did 2003 did lasting recovery take hold, led by domestic demandlasting recovery take hold, led by domestic demand
-3
-2
-1
0
1
2
3
4
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
-3
-2
-1
0
1
2
3
4
Net exports of goods and servicesInventoriesPublic demandPrivate domestic demand
Real GDP growth
Japan: Contributions to GDP Growth
Source: Haver Analytics; and IMF staff calculations
99
What was different about Episode 3?What was different about Episode 3?
External shock was positiveExternal shock was positive
Progress with financial sector reformsProgress with financial sector reforms
Progress with repairing corporate Progress with repairing corporate sector balance sheetssector balance sheets
1010
External environment very favorable External environment very favorable for exports, especially to Chinafor exports, especially to China
Export Value Growth (y/y percent change)
-10
-5
0
5
10
15
1995 1997 1999 2001 2003 2005
Contribution from China
Series1
1111
Financial sector: more aggressive approach Financial sector: more aggressive approach to reducing NPLs and recapitalizing banks.to reducing NPLs and recapitalizing banks.
4.5
5.5
6.5
7.5
8.5
2000
2001
2002
2003
2004
2005
2006
-6
-4
-2
0
2
4
6Tier 1 ratio (major banks)
Credit growth (year-on-year percent change, RHS)
Bank Capital and Lending(In percent)
Sources: Haver Analytics; and Bank of Japan.
0
10,000
20,000
30,000
40,000
50,000
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Risk Management Loans
Non-Performing Loans(In billions of yen)
Source: Financial Services Agency of Japan.
1212
Corporate sector: progress with deleveraging Corporate sector: progress with deleveraging helped to lift investment.helped to lift investment.
200
225
250
275
300
325
Mar
-90
Dec
-91
Sep-
93
Jun-
95
Mar
-97
Dec
-98
Sep-
00
Jun-
02
Mar
-04
Dec
-05
Sep-
07
10
12
14
16
18
20
22Corporate Debt-to-Equity Ratio (in percent)Private fixed investment (percent of GDP, RHS)
Japan: Corporate Leverage and Investment
Source: CEIC Data Company Ltd.
1313
Note on Exit Note on Exit ----
Monetary Policy: Monetary Policy: BoJ able to smoothly unwind its balance sheetBoJ able to smoothly unwind its balance sheet
T-bills
Other assets
0
40
80
120
160
200
2001
2002
2003
2004
2005
2006
2007
2008
Sources: Haver Analytics; and Bank of Japan.
Bank of Japan Assets(In trillions of yen)
2009
Long-term government bonds
Funds-supplying operations
1414
Note on Exit Note on Exit ----
Fiscal Policy: hampered by protractedFiscal Policy: hampered by protracted downturn, delay in framing mediumdownturn, delay in framing medium--term strategy.term strategy.
0
25
50
75
100
125
150
175
200
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Gross debt Net debt
Public Debt(In percent of GDP)
Source: Cabinet Office; and IMF staff calculations.
1515
How Does the Great Recession How Does the Great Recession Compare with the Lost Decade?Compare with the Lost Decade?
Potential Implications Potential Implications for the Global Outlookfor the Global Outlook
IstanbulIstanbul
October 6, 2009October 6, 2009
Anoop SinghAnoop SinghDirector Director
Asia and Pacific DepartmentAsia and Pacific Department International Monetary FundInternational Monetary Fund
1616
We will place JapanWe will place Japan’’s experiences in the s experiences in the current global contextcurrent global context
1.1.
What can JapanWhat can Japan’’s experiences tell us s experiences tell us about the likely durability of the global about the likely durability of the global recovery?recovery?
2.2.
What do they imply about the What do they imply about the appropriate policy stance?appropriate policy stance?
1717
Advanced economy heat maps resemble Advanced economy heat maps resemble somewhat Japansomewhat Japan’’s two early recovery attemptss two early recovery attempts……
Japan: F irst
R ecov ery attempt (M arch 1 9 9 7 )
Japan: S econd
R ecovery attempt
(June 2 0 0 0 )
Japan: S usta inable
R ecovery (June 2 0 0 3 )
US (June 2 0 0 9 )
Euro Area (June 2 0 0 9 )
UK (June 2 0 0 9 )
Trade-re latedInventories 2 -2 -1 2 0Industria l production 2 1 1 0 -2 0Exports 1 1 2 1 0 1
F inancia lT ed Spread -1 -1 -1 1 0 2F inancia l s tress index -1 -1 1 1 0 0Asset prices -2 -1 1 0 -2 0Priv ate credit -1 -1 -1 0 -2 -2
P r ivate Domestic DemandConsum er confidence -1 1 1 0 1 1Reta il sa les 2 -1 -1 0 0 1Unem ploym ent ra te 1 -1 2 0 -2 0Aggregate weekly hours worked -1 0 2 -2 -2Bus iness confidence 1 -1 1 0 1 -2Building perm its /hous ing s tarts -2 -1 1 1 0
R ecov ery Heatmaps: Japan Then, Advanced Economies N ow
Green Shoot T he indica tor is im prov ing for a t least 2 consecutiv e m onths .
Recovery T he indica tor is im prov ing for a t least 4 consecutiv e m onths .
Stabiliz ing T he indica tor has im proved for one m onth only , or s till deteriora ting but a t a s lower pace than before .Deteriora ting T he indica tor is deteriora ting, and a t a faster pace than before .
1818
In Emerging Asia, aggressive stimulus and inventory In Emerging Asia, aggressive stimulus and inventory adjustment helping offset weak external demandadjustment helping offset weak external demand
Japan: First Recovery attempt (March 1997)
Japan: Second
Recovery attempt
(June 2000)
Japan: Sustainable Recovery
(June 2003)
Export-Oriented Asia
(excld. Japan,
June 2009)
China (June 2009)
India (June 2009)
Trade-relatedInventories 2 -2 -1 1 -1 1Industrial production 2 1 1 2 -1 2Exports 1 1 2 2 1 1
FinancialTed Spread -1 -1 -1 -1 -1 2Financial stress index -1 -1 1 1 0Stockmarket -2 -1 1 2 1 2Private credit -1 -1 -1 -1 2 -1
Private Domestic DemandConsumer confidence -1 1 1 2 1 -1Retail sales 2 -1 -1 -1 2 1Business confidence 1 -1 1 -1 1 -1Building permits/housing starts -2 -1 1 -1
-1
Recovery Heatmaps: Japan Then, Emerging Asia Now
Green Shoot The indicator is improving for at least 2 consecutive months.
Recovery The indicator is improving for at least 4 consecutive months.
Stabilizing The indicator has improved for one month only, or still deteriorating but at a slower pace than before.
Deteriorating The indicator is deteriorating, and at a faster pace than before.
1919
Potential Implications of JapanPotential Implications of Japan’’s Experiences s Experiences for the Global Outlookfor the Global Outlook
““Green shootsGreen shoots””
do not do not guarantee a recovery.guarantee a recovery.
Financial fragilities can Financial fragilities can magnify effects of magnify effects of adverse shocks on the adverse shocks on the economy. economy.
Weak global environment could limit prospects Weak global environment could limit prospects for an exportfor an export--led recovery.led recovery.
Déjà vu? Stockmarket Indices1/
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10 11 12 13
FTSE All World Index (Oct 2007=100)Nikkei 225 (Dec 1989=100)
Source: Haver Analytics.1/ Peak=100.
2020
Potential Implications of JapanPotential Implications of Japan’’s Experience s Experience for Policiesfor Policies
Policy stimulus should be maintained for now, but Policy stimulus should be maintained for now, but no panaceano panacea
Underlying financial problems need to be Underlying financial problems need to be addressed for a durable recovery to take hold. addressed for a durable recovery to take hold.
Clear exit plans can help reinforce confidence.Clear exit plans can help reinforce confidence.
––
Role for developing cooperative and coordinated exit Role for developing cooperative and coordinated exit strategies.strategies.