Japan’s real GDP growth

Tyler Cowen has a post entitled “Is Abenomics Working?”  The first line of the post says:

Japan’s economy grew by 0.7% in 2013, down from an initial estimate of 1%.

That reflects the year over year figures, which makes the “in 2013” phrasing slightly misleading. The rate is quite low because Japanese RGDP was falling in 2012, before Abenomics was enacted.  A better test would be 4th quarter over 4th quarter figures, which show about 2.5% RGDP growth during calendar year 2013. That’s actually a decent number for a country with a falling population, and a working age population that is falling even faster than its overall population. Unemployment has fallen to 3.7%. Only once in the past 16 years was a lower unemployment rate reported.

Abenomics will not produce RGDP growth miracles due the the bad supply-side characteristics of the Japanese economy and the fact that unemployment is already fairly modest (even accounting for the bias in their data.) But it will boost growth modestly, and has the potential (if pushed more aggressively), to help reduce their debt burden.

PS.  The post title can be read in two ways, one of which is that “real” means ‘actual.’



31 Responses to “Japan’s real GDP growth”

  1. Gravatar of Major_Freedom Major_Freedom
    10. March 2014 at 13:44

    My favorite part is the data mining to show Japan is doing well or poorly based on one’s ideal monetary policy.

  2. Gravatar of Mark A. Sadowski Mark A. Sadowski
    10. March 2014 at 14:51

    Off Topic.

    Funniest thing I’ve read this month…

    Paul Davidson is co-founder and editor of the Journal of Post Keynesian Economics. Today I came across an article written by him last year that opens with the following paragraph:


    “Many mainstream economists (e.g., Lucas, Cochrane) claim that the characteristics of a “science” require rigor, consistency, and mathematics. So if economics is to be a science it must display these characteristics. Paul Samuelson has added the claim that economists must accept the ergodic axiom in their models in their pursuit of economics as a science on par with physics, astronomy, and chemistry. Efficient market theory possesses all these characteristics. So how is it possible that efficient market theorists did not foresee the financial crisis that started in 2008?…”

    Yes, you read that right. He asks how is that “random markets idea” (aka EMH) theorists were unable to tell the future.


    Davidson said essentially the same thing in a speech before PRMIA a couple of months later (bottom of page 5):


    P.S. Has anyone noticed the seemingly endless complaints about too much mathematics in mainstream economics (“it makes my head hurt”) along with the excessive dropping of the word “ergodic” in heterodox econ blogs recently?


  3. Gravatar of Major_Freedom Major_Freedom
    10. March 2014 at 17:39

    Anyone see HFT trading giant Virtu’s IPO prospectus?


    In 4 years of trading, it lost money on only 1 day. It also beat the market, significantly.

    But I am sure that there is an EMH explanation for this. I know, let’s just keep holding out for a bubble collapse pull-back in profits, then claim victory!

  4. Gravatar of benjamin cole benjamin cole
    10. March 2014 at 17:42

    Excellent blogging.
    Also I wonder about Japan’s much-cited “structural” or “supply side” problems. In the 1980s people raved about Japan Inc and said their pro-business model was better than the USA way. Japan has instituted some reforms in labor and retail markets since then. But I contend comparing one developed nation’s strutural impediments to another’s is almost impossible due to the welter of local, state and national governments and complex taxes and regulations…let alone language.
    Japan’s problems are monetary, unless there is compelling evidence they instituted massive structural problems in 1992.
    Japan’s monetary purgatory suggests there are even further problems to tight money than only the sticky wage problem. Japan even suggests that money is not long-term neutral but can permanently damage real output.

  5. Gravatar of Major_Freedom Major_Freedom
    10. March 2014 at 17:50

    Benjamin Cole:

    “Also I wonder about Japan’s much-cited “structural” or “supply side” problems.”

    But of course! NGDP explains everything. But don’t say that explicitly. Just suggest it indirectly.

  6. Gravatar of dannyb2b dannyb2b
    10. March 2014 at 18:21

    “But it will boost growth modestly, and has the potential (if pushed more aggressively), to help reduce their debt burden.”

    How could Abenomics potentially reduce the debt burden? Since the 60% Japan’s gov. debt has never declined but for a few brief years when the private sector was increasing its debt load.

  7. Gravatar of dannyb2b dannyb2b
    10. March 2014 at 18:36

    my previous comment is a typo

    “But it will boost growth modestly, and has the potential (if pushed more aggressively), to help reduce their debt burden.”

    How could Abenomics potentially reduce the debt burden? Since the 60’s Japan’s gov. debt has never declined but for a few brief years when the private sector was increasing its debt load.

  8. Gravatar of Mark A. Sadowski Mark A. Sadowski
    10. March 2014 at 20:06

    “How could Abenomics potentially reduce the debt burden? Since the 60″²s Japan’s gov. debt has never declined but for a few brief years when the private sector was increasing its debt load.”

    According to the IMF general government debt fell from 186.4% of GDP in 2005 to 186.0% in 2006 to 183.0% of GDP in 2005:


    According to the World Bank domestic credit to private sector fell from 192.9% of GDP in 2005 to 188.7% of GDP in 2006 to 181.1% of GDP in 2007:


    This was towards the end of the Koizumi Boom which largely coincided with Japan’s original ryōteki kin’yÅ« kanwa (QE).

  9. Gravatar of Mark A. Sadowski Mark A. Sadowski
    10. March 2014 at 20:08

    “According to the IMF general government debt fell from 186.4% of GDP in 2005 to 186.0% in 2006 to 183.0% of GDP in 2005:…”

    should read

    “According to the IMF general government debt fell from 186.4% of GDP in 2005 to 186.0% in 2006 to 183.0% of GDP in 2007:…”

  10. Gravatar of Benjamin Cole Benjamin Cole
    10. March 2014 at 20:48

    Major Freedom:

    Okay, Japan’s performance breaks down in 1992. What are the major structural problems that emerged suddenly then? Why were they considered structurally better all through the 1980s?

    New topic.

    Virtu? Why would they go public? I assume HFT means they arbitrage tiny a,outs over and over again and make money.

    They need to go public to raise money? I can’t imagine they are a capital intensive business, or that if it had a good business model they could not get lot of private capital.

    Ir, is it a one-trick pony to be dumped off on the public?

    Have their profits been rising?

    If they make their money by rapid arbitrage of small differences, they are nearly an example of EMH in action….

  11. Gravatar of dannyb2b dannyb2b
    10. March 2014 at 21:05


    There was a recession in Japan during that period you cited. I was refering to this statement implying growth and reduction of debt.

    “But it will boost growth modestly, and has the potential (if pushed more aggressively), to help reduce their debt burden.”

  12. Gravatar of Mark A. Sadowski Mark A. Sadowski
    11. March 2014 at 01:08

    “There was a recession in Japan during that period you cited.”

    There was no recession in Japan in 2005-07. This was part of a period that is now known as the “Koizumi Boom”:


  13. Gravatar of dannyb2b dannyb2b
    11. March 2014 at 01:32

    ok I made a mistake. Nominal gdp went down not realgdp.

  14. Gravatar of Mark A. Sadowski Mark A. Sadowski
    11. March 2014 at 03:37

    “Nominal gdp went down not realgdp.”

    Actually, Japan’s NGDP went up from 503.9 trillion yen in 2005 to 506.7 trillion yen in 2006 to 513.0 trillion yen in 2007:


    In fact NGDP went up four years in a row during the Koizumi Boom (2004, 2005, 2006 and 2007), which is the only time that NGDP has ever gone up in consecutive years in Japan since 1997.

    This almost certainly had something to do with Japan’s original ryōteki kin’yÅ« kanwa (QE).

  15. Gravatar of Maurizio Maurizio
    11. March 2014 at 04:43

    Where can I get the Japanese NGDP graph? thanks

  16. Gravatar of Mark A. Sadowski Mark A. Sadowski
    11. March 2014 at 05:10

    Here’s a graph of annual NGDP for Japan since 1994:


    In the process of creating the graph I noticed that NGDP rose in 2012 and in 2013 which is the first consecutive increase in NGDP since the Koizumi Boom.

    P.S. FRED is a nice resource for the creation of your own graphs and the downloading of data. To start an account all you need is an email address.

  17. Gravatar of himaginary himaginary
    11. March 2014 at 05:35

    “That reflects the year over year figures”

    No, it’s annualized 4th quarter growth rate. The BBC article is simply wrong. See

  18. Gravatar of Maurizio Maurizio
    11. March 2014 at 06:13

    Thanks a lot Mark!

  19. Gravatar of ssumner ssumner
    11. March 2014 at 08:01

    Mark, Thanks, I’ll do a post.

    Ben, I was thinking of population/workforce growth, which is far slower than in the 1980s. That’s also true of other East Asian countries like South Korea.

    Danny. It will slightly reduce budget deficits, and it will boost NGDP (the denominator of debt/NGDP.)

    himaginary, Thanks, but the y-o-y figures would also be lower than 2.5%.

  20. Gravatar of TravisV TravisV
    11. March 2014 at 12:06

    Are expectations really the transmission mechanism? Hmmmmm…..


    “To sum it up: 4.1% of Japanese consumers currently expect deflation. Over the past 10 years, that number has averaged 6.8%. The remaining 95.9% (93.2% on average) expect prices to go up or remain unchanged.

    In the Times, Tabuchi cites Yusa Nishimura, whose “purse could be undermining Prime Minister Shinzo Abe’s economic recovery plan for Japan.”

    “As often as she can, Ms. Nishimura tucks away 500-yen coins, worth a little under $5,” writes Tabuchi.

    “Ms. Nishimura, 23, even has a folder that displays them so Japan’s highest-denomination coins are easier to count. Cash nest eggs like Ms. Nishimura’s made sense in slow-growing Japan, where during 15 years of deflation her money was worth more as time went on. The spa getaway she planned to splurge on was likely to get cheaper if she waited longer.”

    But Ms. Nishimura appears to be one of only 4.1% of Japanese consumers who fear deflation.

    As Nomura chief economist Richard Koo put it in a 2013 report on Abenomics, “the government’s view that the economy will improve as long as deflation can be defeated depends entirely on a change in the behavior” of those like Ms. Nishimura “” the tiny slice of Japanese consumers hoarding money in anticipation of lower prices.”

  21. Gravatar of Matt C Matt C
    11. March 2014 at 18:44


    Michael Pettis recently wrote an article stating that he fears that abenomics may be “derailed by its own success.”


    Basically, he states that if Nominal GDP increases in Nominal interest rates remain repressed it will increase the savings rate and further reduce consumption as a share of GDP, basically further imbalancing the economy away from consumption. This effect can be further exacerbated if they implement a higher income tax. But on the other hand if they raise interest rates in line with Nominal GDP growth debt servicing capacity would soar.

    Basically, unless we see some privatizing of government assets Japan is in a hard spot. They could either further drive down consumption as a share of GDP or increase their debt servicing costs. Do you believe these are valid concerns?

  22. Gravatar of Mark A. Sadowski Mark A. Sadowski
    11. March 2014 at 18:54

    Off Topic.

    If you pay a visit to the Wikipedia “aggregate demand” page you’ll notice a section on debt where a version of the following equation is used:

    Aggregate Spending = Aggregate Income + Change in Debt

    To derive something called the “credit impulse”, which is essentially the idea that the change in aggregate demand is related to the change in the change in debt, or the acceleration of debt. This concept has been shown graphically in many financial blogs, and was adopted by Steve Keen and renamed the “credit accelerator”. But note the obvious system of national accounts problem that aggregate expenditures is not equal to aggregate income.

    Michael Biggs, economist at Deutsche Bank, introduced this idea in November 2008 as the “the change in new credit issued as a % of GDP”. I’ve replicated Biggs, Mayer and Pick’s econometric estimation of credit impulse for the US. On first glance the correlations appear to be statistically significant, but there’s much more to the story, which I’ll get to in a moment.

    Back in 2006, Calvo, Izquierdo and Talvi published a paper in which they described a very similar pattern in emerging market economies following financial crises in which output recovered with virtually no recovery in either domestic or foreign credit, a phenomenon that they termed a Phoenix Miracle. Calvo also showed that the Great Depression could be classified as a Phoenix Miracle.

    Biggs, Mayer and Pick developed the concept of the credit impulse specifically to explain the phenomenon of credit-less recoveries:



    The second paper more useful since the sources for the data are described in detail.

    The credit impulse is essentially the rate of change of the rate of change in credit market debt as a percent of GDP, or the acceleration of credit. So even though the credit impulse may be positively correlated with growth in real consumption and investment, it does not imply that the stock of debt must increase in order for economic growth to take place. On the contrary the credit impulse was developed specifically to demonstrate the importance of credit in credit-less recoveries.

    The credit impulse’s theoretical justification is obviously wanting, since the above equation is a clear violation of the system of national accounts. In addition, since the dependent and independent variables correlate strongly with lagged terms of themselves, owing to the fact that they are year on year differences, there are serious econometric problems with its estimates. In fact although Biggs, Mayer and Pick first wrote about their results in 2009, estimates of the Biggs’ version of the credit impulse, with its overlapping observations, still has yet to appear in any peer reviewed research journal.

    When I repeat the very same analysis of US data over the period 1954Q1 through 2008Q4 as Biggs, Mayer and Pick, I find that the Durbin-Watson statistic is far too low (0.48) indicating there’s a serious problem with autocorrelation. This should not be too surprising because of the overlapping observations (i.e. everything is year on year). Biggs, Mayer and Pick don’t mention this problem at all in either of their papers. The only indication that they tried to deal with the problem is they report using Newey-West HAC standard errors.

    When I re-estimate Biggs, Mayer and Pick’s equation using quarter on quarter observations, instead of year on year observations, in order to overcome to problem with autocorrelation, the Durbin-Watson statistic is much better (1.36), although still too low to be acceptable. But the credit impulse ceases being statistically significant. More importantly, the slope coefficient isn’t even the expected sign anymore.

  23. Gravatar of Mark A. Sadowski Mark A. Sadowski
    11. March 2014 at 18:55

    To give you a feel for how spurious the credit impulse correlations are, here’s a graph of quarterly changes of nominal wages and real productivity at an annual rate from 1965-2013:


    When one regresses wages on productivity the estimation is nowhere near being statistically significant, and this is not surprising from a theoretical standpoint. Despite the fact there are no overlapping observations, the Durbin-Watson statistic (0.42) still indicates there is a serious problem with autocorrelation. First differencing each variable totally eliminates the problem and the results remain statistically insignificant.

    Here is the graph of the same variables but this time in year on year form:


    Now the variables are negatively correlated at the 5% significance level. The Durbin-Watson statistic is 0.05. Simply by making the observations overlap so that autocorrelation becomes a very serious problem, we can get two variables which should be completely unrelated in theory to be highly correlated.

    This is the problem with the credit impulse in a nutshell.

  24. Gravatar of mike smitka mike smitka
    12. March 2014 at 04:55

    Benjamin Cole is correct on the facile correlations made between Japanese economic growth and various structures. I was a member of the Association of Japanese Business Studies for many years – as an economist at a liberal arts college – and observed first-hand B-School profs who would helicopter into Tokyo looking for the secrets of Japan’s success in promote-from-within management (including Boards with no outsiders), in the benefits of “keiretsu” ties (oft ill-defined) and so on. On the economics side I co-translated a book Industrial Policy of Japan (in which Japanese economists overall argued for no particular benefits and not much harm). Then there was the “sharing economy” (Weitzman and others), which doesn’t look so bad in retrospect. And of course all the “green shoots” prognosticators (including in the Ministry of Finance) who undermined attempts at using fiscal policy – while the BOJ dropped interest rates to zero over 15 years ago. Then (25 years ago) I had classrooms overflowing for my Japanese Economy class, very small enrollments for my one on China. Now I can’t garner enough students to offer my Japanese Economy class (though for many issues it should be THE economy for us in the EU and US to study)…

    Separately, I’m flabbergasted that economists use FRED or the IMF or the World Bank as a data source. It only takes a couple minutes to find and download data directly from the various statistical agencies in Japan; virtually all of their data have English headings, and for the most part you can find them quickly via English-language government web sites. A useful spot for a quick overview is the BOJ’s Monthly Report of Recent Economic and Financial Developments, which comes out in English only a day or at most two after the Japanese-language version.

    So … GDP may be up a bit, and the BOJ survey notes that wages are rising. At the same time, wages are falling. Why? – because the increase in the number of part-time and other contingent workers continues to lower the average for the economy as a whole. Now I’ve not tried to dive into the data to see whether younger workers are starting to find full-time jobs. That’s key. And that would help indicate whether Japan might start pushing against supply-side limits or whether come April 1st Japan will remain vulnerable to the predictable demand-side shock of the hike in the consumption tax [national sales tax]. The indicator to watch will be car sales towards … now. I was on sabbatical in Japan in 1997, when the last hike occurred, and because of the delay between “buying” a car (dealerships don’t carry much inventory) and taking delivery (when you pay, and hence when the tax is due) dealerships were empty, and didn’t fill up again come April 1st. Unfortunately there is also a strong seasonal pattern in which car sales slump every April, so interpreting the data will be a challenge.

    Oh, and here’s the link to the main English-language stats page:

  25. Gravatar of TravisV TravisV
    12. March 2014 at 05:53

    Matthew C. Klein on Twitter:

    Excellent explanation of where money comes from and what central banks do, via @bankofengland http://bit.ly/1kLQqwS Sumner should read it


  26. Gravatar of ssumner ssumner
    12. March 2014 at 11:15

    Travisd, Never ask poll questions about inflation. It’s like asking the public what they think of the Higgs boson.

    Matt, I think they face lots of difficulties, and I agree they need to privatize. I’m not sure about the saving issue, I see that more as a symptom than a cause.

    Mark, That equation never looked too promising to me.

    Mike, Thanks for the info on Japan.

    Travis, I already did a post, will put it up by tomorrow.

  27. Gravatar of Mikio Mikio
    14. March 2014 at 20:58

    Dear Scott,

    here is a just-publish bearish comment on Japan, which is seen as the top candidate for causing the next crisis, by Anatole Kaletsky.

    The main culprits seem to be the coming consumption 3% tax hike, (allegedly) abandoned corporate tax cuts, insufficient base wage increases (below inflation rate), and slow structural reforms (if any).

    He doesn’t seen to believe in any sort of monetary offset.

    I would appreciate your views, if any.


    Best M

  28. Gravatar of Mikio Mikio
    14. March 2014 at 21:08

    Incidentally, I went through the most recent NGDP numbers for Japan.

    While the headline RGDP figure was below consensus expectations, all components continued to rise in nominal terms, including household spending, and private non-residential investment.

    The main problem in terms of the headline RGDP figure seems to be that imports are surging even faster than exports. That, in my book, is not really a problem.

    One could say, that Japan is not doing enough QE, and that reforms are slow. But I don’t see it doomed because of a sales tax hike and below-inflation gains in base wages…

    That is, unless we get a full repeat of 1997, i.e. an Asian financial and economic meltdown (which isn’t my base case either).

  29. Gravatar of ssumner ssumner
    15. March 2014 at 05:00

    Mikio, I’d like to see some more monetary stimulus, and more economic reforms. But on the other hand I don’t agree with his reasoning. Higher wages would not help.

  30. Gravatar of Mikio Mikio
    15. March 2014 at 08:32

    I fully agree that we will probably need more monetary action.

    Kuroda, by the way, in an interview today with the Asahi Shimbun, indicated that “consideration for further measures would be made at an early stage” after the consumption tax rate.

    Let’s see.

  31. Gravatar of ssumner ssumner
    15. March 2014 at 12:40

    Mikio, They will be needed.

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