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Post-Bubble Deflation: Japan vs United States

  • Written by Syndicated Publisher 51 Comments51 Comments Comments
    November 15, 2011

    Here is a look at the Nikkei 225 which gives an overview of the cyclical rallies and their duration during Japan’s secular bear market, now in its 21st year.



    I’ve been posting a weekly update of mega-bear market charts (here) that includes Japan’s Nikkei 225. In addition, every few months I update an inflation-adjusted overlay of the Nikkei 225 and S&P 500 bubbles.

    The table below documents the advances and declines and the elapsed time for the major cycles in the Nikkei.



    Nikkei 225 Advances and Declines


    Japan’s Q3 Real GDP Up 6.0%

    The strong recovery in Q3 GDP was an expected rebound following the devastating March earthquake, which sharply reduced private consumption and especially exports. In the preliminary Q3 report, private consumption rose 1.5% quarter-over-quarter, and net exports (exports minus imports) rose a dramatic 13.9% following a -16.5% collapse of Q2.



    The GDP rebound is definitely a move in the right direction, but the next chart illustrates the economic challenges that the country faces. The 6% jump in Q3 GDP still leaves the economy 4.4% below its all-time high of Q1 2008.



    Even with the Q3 rebound, Japan’s real GDP is fractionally below the level of Q3 2010. We defintely want to see more of those green bars in the quarters ahead, but a near-term risk is the potential for reduced demand for Japanese exports stemming from Eurozone austerity measures.


    Note: The “recessions” highlighted in the third chart above are based on the OECD Composite Leading Indicators Reference Turning Points and Component Series. I use the peak-to-trough version of data (peak month begins the gray, trough month is excluded), which is conveniently available in the FREDrepository. As we can readily see, the OECD concept of turning points is much broader than the method used by the NBER to define recessions in the US.


    Images: Flickr (licence attribution)

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.