The US consumer, they say, is broke. And we got another evidence of the same, albeit not in the US but in Japan, its trans-pacific neighbor. As per Bloomberg, the world’s second largest economy saw its exports plunge by a whopping 49% in the month of February on a YoY basis, its worst showing in almost 30 years. What more, exports to the US fell even more, a shade under 60% as consumers in the world’s largest economy scaled back their purchases of autos and electronics big time. Courtesy the miserable showing, Japan’s economic contraction in the current quarter could well match the 12% decline it experienced in the previous quarter, forcing the government to resort to yet another round of fiscal stimulus. However, this is easier said than done as the country already is knee deep in public debt. Its public debt to GDP ratio currently stands at a whopping 170% and any further stimulus will only exacerbate matters. Furthermore, its rapidly ageing population means that every year, the universe of people who will help repay the debt is shrinking at a worrying pace. The land of rising sun it may be, but as far as its financial health is concerned, Japan is really staring down the barrel.
Needless to say that exports, the mainstay of the Japanese economy, has been mired in one of its worst slump in years. This of course would mean job loss to the tune of tens of thousands of people and a sharp decline in GDP growth. However, if the government intends to avoid such a scenario, it means doing what governments across the world are doing. Resort to fiscal stimulus that is. Japanese media has put the figure at US$ 612 bn to be spread over the next three years, aimed at creating 2 m additional jobs. While that could mean further imperiling the company’s huge public debt to GDP ratio, the other option that the Japanese government has, which is of not resorting to stimulus could well lead to even more disastrous results
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