Actually Japan Isn't Growing At All -- It's Just Deflating

Japanese deflation just keeps getting uglier. Prices dropped 2.6% year over year in the third quarter, the worst drop in 58 years. This just makes the country’s crushing debt burden even heavier.

More importantly, the deflation data reminds us that the Japanese economy isn’t growing. It’s just deflating.

While Japanese third quarter GDP ‘growth’ surprised economists, notching 1.2% recently (~4.8% annualized), if everything’s deflating at 2.6% then GDP really doesn’t say much about growing economic activity. Economic activity is actually still falling once you factor out deflation; note that seasonally-adjusted nominal GDP officially fell 0.3% in the third quarter. Unadjusted nominal GDP fell 4.4%. See the green rows in the screen shots below, taken from the latest Japanese GDP releases.

Don’t be fooled by deflation mucking up the real meaning of GDP data — Japan’s economy is still sinking.


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