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Japan's economy slides further towards recession

The country's fifth in 15 years.

Japanese gross domestic product (GDP) contracted by 0.9 per cent between July and September, as anaemic domestic consumption dovetailed with stagnant western demand and souring relations with China to derail the world's third largest economy.

Shrinking at its sharpest rate since the Fukushima disaster in early 2011, Japan posted a 3.5 per cent contraction in GDP from last year.

Japan has been desperately seeking recovery from last year’s earthquake and tsunami, but despite robust growth in early 2012 – driven by the reconstruction of the country’s northeast in the wake of the disaster – a number of factors have significantly hampered recovery.

A 5 per cent fall in exports – a crucial driver of Japanese growth – accounted for the bulk of the third quarter contraction, comprising 0.7 percent of the 0.9 per cent fall in GDP.

Sluggish US recovery and the ongoing eurozone debt crisis weighed heavily on demand for exports, with technology titans Sony and Panasonic representing two of the many Japanese companies posting significant losses due to the ongoing global downturn.

Worse still, the deteriorating economic climate in the West has prompted numerous investors to pile into the yen, which is regarded as a safe-haven asset in the current environment. Accordingly, the yen has appreciated 5 per cent against the dollar and 8.5 per cent against the euro, rendering exports more expensive and thus less competitive.

Meanwhile, anti-Japanese sentiment in China – Japan’s primary trading partner – has reached fever pitch as the ongoing territorial dispute over the Senkaku-Diaoyu islands rages on. Widespread boycotts of Japanese goods have hit exports hard, particularly within the automotive sector, with Nissan, Honda, and Toyota all posting major losses.

Overall, Japan’s trade deficit reached a whopping ¥980bn (£7.8bn) in September – its largest in almost 30 years.

On the domestic front, modest stimulus measures by the Bank of Japan have had a hollow effect. Private consumption – which accounts for roughly 60 per cent of the economy – fell by 0.5 per cent in the third quarter.

“The decline in exports seems large. Consumption and capital expenditure were also weak, showing that both external and domestic demand are weak”, Yasuo Yamamoto, an economist at Mizuho Research Institute in Tokyo, told the BBC.

The figures are expected to be even worse for the final quarter of 2012, which has stoked fears of looming recession, defined as two quarters of sustained GDP contraction.

“I cannot deny the possibility that Japan has fallen into a recession phase”, Japan’s economy minister, Seiji Maehara, told reporters upon the release of the figures.

The data has piled pressure on the government to counteract the slide into recession. But with a 3.2 per cent decline in capital expenditure, economic malaise and the vice-grip of uncertainty are likely to continue stifling investment regardless of further stimulus plans.

“There is very little demand for credit. In fact, Japanese firms are holding back on capital expenditure”, Junko Nishioka, an economist at RBS Securities, told the BBC

Alex Ward is a London-based freelance journalist who has previously worked for the Times & the Press Association. Twitter: @alexward3000

Photo: Getty Images
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How can Britain become a nation of homeowners?

David Cameron must unlock the spirit of his postwar predecessors to get the housing market back on track. 

In the 1955 election, Anthony Eden described turning Britain into a “property-owning democracy” as his – and by extension, the Conservative Party’s – overarching mission.

60 years later, what’s changed? Then, as now, an Old Etonian sits in Downing Street. Then, as now, Labour are badly riven between left and right, with their last stay in government widely believed – by their activists at least – to have been a disappointment. Then as now, few commentators seriously believe the Tories will be out of power any time soon.

But as for a property-owning democracy? That’s going less well.

When Eden won in 1955, around a third of people owned their own homes. By the time the Conservative government gave way to Harold Wilson in 1964, 42 per cent of households were owner-occupiers.

That kicked off a long period – from the mid-50s right until the fall of the Berlin Wall – in which home ownership increased, before staying roughly flat at 70 per cent of the population from 1991 to 2001.

But over the course of the next decade, for the first time in over a hundred years, the proportion of owner-occupiers went to into reverse. Just 64 percent of households were owner-occupier in 2011. No-one seriously believes that number will have gone anywhere other than down by the time of the next census in 2021. Most troublingly, in London – which, for the most part, gives us a fairly accurate idea of what the demographics of Britain as a whole will be in 30 years’ time – more than half of households are now renters.

What’s gone wrong?

In short, property prices have shot out of reach of increasing numbers of people. The British housing market increasingly gets a failing grade at “Social Contract 101”: could someone, without a backstop of parental or family capital, entering the workforce today, working full-time, seriously hope to retire in 50 years in their own home with their mortgage paid off?

It’s useful to compare and contrast the policy levers of those two Old Etonians, Eden and Cameron. Cameron, so far, has favoured demand-side solutions: Help to Buy and the new Help to Buy ISA.

To take the second, newer of those two policy innovations first: the Help to Buy ISA. Does it work?

Well, if you are a pre-existing saver – you can’t use the Help to Buy ISA for another tax year. And you have to stop putting money into any existing ISAs. So anyone putting a little aside at the moment – not going to feel the benefit of a Help to Buy ISA.

And anyone solely reliant on a Help to Buy ISA – the most you can benefit from, if you are single, it is an extra three grand from the government. This is not going to shift any houses any time soon.

What it is is a bung for the only working-age demographic to have done well out of the Coalition: dual-earner couples with no children earning above average income.

What about Help to Buy itself? At the margins, Help to Buy is helping some people achieve completions – while driving up the big disincentive to home ownership in the shape of prices – and creating sub-prime style risks for the taxpayer in future.

Eden, in contrast, preferred supply-side policies: his government, like every peacetime government from Baldwin until Thatcher’s it was a housebuilding government.

Why are house prices so high? Because there aren’t enough of them. The sector is over-regulated, underprovided, there isn’t enough housing either for social lets or for buyers. And until today’s Conservatives rediscover the spirit of Eden, that is unlikely to change.

I was at a Conservative party fringe (I was on the far left, both in terms of seating and politics).This is what I said, minus the ums, the ahs, and the moment my screensaver kicked in.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.