Japan s s Lost Decade: From Crisis to Recovery

Transcription

1 Japan s s Lost Decade: From Crisis to Recovery Istanbul October 6, 29 James Gordon Senior Advisor Asia and Pacific Department International Monetary Fund 1

2 We revisit Japan s lost decade for potential insights about the global outlook My presentation looks back and discusses: 1. Three recovery attempts during Japan s s crisis: 1997 recovery derailed by Asia Crisis. 2 recovery foundered again 23 recovery sustained 2. What was different about the third episode? Next presentation will discuss implications of Japan s s experience for current global outlook and policies. 2

3 Japan s s crisis spanned a dozen years with three phases of downturn and recovery Phases in Japan's Banking Crisis (Real GDP growth; in percent) 6 4 Asian crisis Dot-com crash 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 Source: Haver Analytics. 3

4 Production and labor market indicators tell the same tale of two incipient pickups followed by a sustained recovery Japan: Industrial Production and Unemployment 11 Industrial production (199=1) Unemployment rate (RHS) Phase 1 Phase 2 Phase M1 1992M4 1994M7 1996M1 1999M1 21M4 23M7 25M1 Source: Haver Analytics. 4

5 What did the Heat maps show about the recovery at the time? Trade-related The Three Phases of the Lost Decade: Recovery Heatmaps Japan: Second Recovery Japan: First Recovery attempt attempt Japan: Sustainable Recovery Before (Mar 97) After (Sept 97) Before (Jun ) After (Dec ) Before (Jun 3) After (Dec 3) Inventories Industrial production Exports Financial Ted Spread Financial stress index Asset prices Private credit Private Domestic Demand Consumer confidence Retail sales Unemployment rate Aggregate weekly hours worked Business confidence Building permits/housing starts Recovery The indicator is improving for at least 4 consecutive months. Green Shoot The indicator is improving for at least 2 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. 5

6 Episode 1: signs of recovery allowed fiscal stimulus to be withdrawn -- then Asian crisis struck. Fiscal Stimulus and Growth 3 2 Consumption tax hike + Asian crisis Fiscal stimulus (percent of GDP) 1/ Real GDP growth (RHS) Sources: Ministry of Finance; Cabinet Office; and IMF staff estimates. 1Defined as the change in structural balance 6

7 Episode 2: economy on the mend again, but reversal after global IT crash policy stimulus reintroduced Japan: Policy Rate and Stock Market Index Target rate Nikkei 225 (1985=1), RHS Jan-99 Aug-99 Source: Haver Analytics. Mar- Oct- May-1 Dec-1 7

8 Episode 3: only at third attempt in mid-23 did lasting recovery take hold, led by domestic demand Japan: Contributions to GDP Growth Real GDP growth Net exports of goods and services Inventories Public demand Private domestic demand Source: Haver Analytics; and IMF staff calculations 8

9 What was different about Episode 3? External shock was positive Progress with financial sector reforms Progress with repairing corporate sector balance sheets 9

10 External environment very favorable for exports, especially to China 15 Export Value Growth (y/y percent change) Contribution from China -1 Series1 1

11 Financial sector: more aggressive approach to reducing NPLs and recapitalizing banks. Non-Performing Loans (In billions of yen) Bank Capital and Lending (In percent) 5, 4, 3, Risk Management Loans Tier 1 ratio (major banks) Credit growth (year-on-year percent change, RHS) , 1, Source: Financial Services Agency of Japan. Sources: Haver Analytics; and Bank of Japan. 11

12 Corporate sector: progress with deleveraging helped to lift investment. Japan: Corporate Leverage and Investment Corporate Debt-to-Equity Ratio (in percent) Private fixed investment (percent of GDP, RHS) Mar-9 Dec-91 Sep-93 Jun-95 Mar-97 Dec-98 Sep- Jun-2 Mar-4 Dec-5 Sep-7 Source: CEIC Data Company Ltd. 12

13 Note on Exit -- Monetary Policy: BoJ able to smoothly unwind its balance sheet Bank of Japan Assets (In trillions of yen) Long-term government bonds Funds-supplying operations T-bills Other assets Sources: Haver Analytics; and Bank of Japan. 13

14 Note on Exit -- Fiscal Policy: hampered by protracted downturn, delay in framing medium-term strategy. Public Debt (In percent of GDP) Gross debt Net debt Source: Cabinet Office; and IMF staff calculations. 14

15 How Does the Great Recession Compare with the Lost Decade? Potential Implications for the Global Outlook Istanbul October 6, 29 Anoop Singh Director Asia and Pacific Department International Monetary Fund 15

16 We will place Japan s s experiences in the current global context 1. What can Japan s s experiences tell us about the likely durability of the global recovery? 2. What do they imply about the appropriate policy stance? 16

17 Advanced economy heat maps resemble somewhat Japan s s two early recovery attempts Recovery Heatmaps: Japan Then, Advanced Economies Now Japan: First Recovery attempt (March 1997) Japan: Second Recovery attempt (June 2) Japan: Sustainable R ecovery (June 23) US (June 29) Euro Area (June 29) UK (June 29) Trade-related Inventories Industrial production Exports Financial Ted Spread F ina nc ia l s tre s s ind e x Asset prices Private credit Private Domestic Demand Consumer confidence R e ta il s a le s Unemployment rate Aggregate weekly hours worked Business confidence B uild ing p e rm its / ho us ing s ta rts Recovery T he indicator is improving for at least 4 consecutive months. Green Shoot T he ind ic a to r is im p rov ing fo r a t le a s t 2 c o ns e c utiv e m o nths. Sta b iliz ing The indicator has improved for one month only, or still deteriorating but at a slower pace than before. Deteriorating T he indicator is deteriorating, and at a faster pace than before. 17

18 In Emerging Asia, aggressive stimulus and inventory adjustment helping offset weak external demand Recovery Heatmaps: Japan Then, Emerging Asia Now Japan: First Recovery attempt (March 1997) Japan: Second Recovery attempt (June 2) Japan: Sustainable Recovery (June 23) Export- Oriented Asia (excld. Japan, June 29) China (June 29) India (June 29) Trade-related Inventories Industrial production Exports Financial Ted Spread Financial stress index Stockmarket Private credit Private Domestic Demand Consumer confidence Retail sales Business confidence Building permits/housing starts Recovery The indicator is improving for at least 4 consecutive months. -1 Green Shoot The indicator is improving for at least 2 consecutive months. Stabilizing The indicator has improved for one month only, or still deteriorat ing but at a slower pace than before. Deteriorating The indicator is deteriorating, and at a faster pace than before. 18

19 Potential Implications of Japan s s Experiences for the Global Outlook Green shoots do not guarantee a recovery Déjà vu? Stockmarket Indices1/ Financial fragilities can magnify effects of adverse shocks on the economy FTSE All World Index (Oct 27=1) Nikkei 225 (Dec 1989=1) Source: Haver Analytics. 1/ Peak=1. Weak global environment could limit prospects for an export-led recovery. 19

20 Potential Implications of Japan s s Experience for Policies Policy stimulus should be maintained for now, but no panacea Underlying financial problems need to be addressed for a durable recovery to take hold. Clear exit plans can help reinforce confidence. Role for developing cooperative and coordinated exit strategies. 2