Japan's economy continues on its bumpy recovery. From Bloomberg:
Japan's service industries shrank for the first month in five as consumers and companies trimmed spending after the biggest expansion in a year in January.
The tertiary index fell 1.5 percent in February from a month earlier, the trade ministry said today. The result was worse than the median estimate for a 1.1 percent contraction among 33 economists surveyed by Bloomberg. January's revised 1.5 percent expansion was the biggest in a year...
From the same month a year ago, the tertiary rose 2.4 percent. Japan's all-industry index fell 0.9 percent in February from January, and rose 2.5 year-on-year, the trade ministry said.
Japan's struggle out of deflation is probably a good lesson for China. At least, that seems to be what Morgan Stanley's Stephen Roach thinks.
A day after the warning from Morgan Stanley that China risks a hard landing in 2007-08 as a result of excessive investment, its chief economist Stephen Roach says that it also faces the prospect of protectionism:
The Chinese leadership has rejected the advice to institute a major revaluation of the renminbi offered by a broad array of so-called US experts... While China will now have to face the wrath of the protectionists, in my view, the Chinese leadership has made the right decision at the right time...
... Repeatedly during the 1980s, when the US was in the midst of its first external crisis -- a current account deficit that peaked at a then-unheard of 3.4% share of GDP -- Washington pounded on Japan to let the yen rise... Unfortunately, the Japanese heeded this advice... Japan’s “endaka” (strong yen) was a major factor behind its subsequent undoing -- fueling the mother of all asset bubbles in equities and property that ended with a sickening collapse into a protracted post-bubble deflation... [A] mere 20 years later, America is offering the Chinese the same bad advice that took Japan down a road of unmitigated macro disaster...
... China is wise to resist the bad advice it is getting from its largest trading partner. The last thing it needs is a Japanese-style deflation. The best answer for China is to execute the internally-directed rebalancing strategy that is contained in its 11th Five-Year Plan...
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