E Where Does Japan's Economy Stand?

Where does Japan's economy stand? Well, we know from Scott Sumner that employment is high, unemployment is very low, and stimulus appears to be working. We can see that capacity utilization is quite high in Japan compared to the mid 70's for the United States:

Courtesy Trading Economics

So, based on low unemployment and high capacity utilization, where does Japan stand? Edward Lambert of Effective Demand Research said this in general about economies:

Let me boil this down… There is an equilibrium point between supply and demand that determines the scale of output and employment, all at the aggregate level. As Keynes saw it, supply and demand both increase as output increases, with more demand than supply. But demand increases at a slower rate than output, so that there is a point at which they cross and are in equilibrium. At this point, output is limited by demand and both demand and supply stop increasing. It is in this way that the “scale” of output and employment is “determined” by the equilibrium crossing point.

It is clear that Japan is booming. There are signs for "help wanted" everywhere. Scott Sumner says this growth is a qualified success, but he also issues a warning:

The lesson here is that when you have a labor market that is facing inadequate AD, the solution is simple—more NGDP.  But printing money can’t perform miracles. Relatively soon Japan will reach capacity, and RGDP growth will stop.  At that point the BOJ must keep NGDP growing at 2% per year to ease its public debt burden.

I don't know how much, if at all, Scott Sumner relies on the concept of Effective Demand. So, I don't know if he is talking about capacity utilization when he is talking about capacity. But clearly, with all the help wanted signs, it could happen that output is constrained at some point in the future forcing capacity utilization to decline. It will be interesting to watch capacity utilization to see if Japan slows in that statistic. There was a slight drop in March, but certainly, it will take a few more months to see if this capacity narrows more. If not, and if effective demand remains a reliable indicator, the expansion continues awhile longer.  

1 2
View single page >> |

Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice. I have no financial interest in any company listed in this article. 

...more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free iPad Pro.