Japan: Unemployment Still The Rub

Unemployment in Japan moved up to 5% in April. That may not seem like much to Americans, but in the world’s second largest economy it is like a 10% figure would be in the US.

Factory production was up 5.2% in April. That increase, over March, was the largest jump in 56 years. Nonetheless, production is still low by historical standards.

Japan may be a canary in the coal mine for the US. Household spending in the Asian nation is falling and there are concerns about deflation returning. It crippled the Japanese economy for almost a decade beginning in the 1990s. American policy makers believe that they can increase interest rates and manipulate the money supply to keep the US economy working at a low level of inflation, perhaps 2%.

But, the Fed’s plans to fight off a period of deflation cannot be entirely adjusted for a situation in which 10% or more of Americans are out of work for several quarters. That would be unprecedented in modern times and it would undercut consumer spending at an unimaginable rate.

American policymakers say that the US will never face the challenges that Japan faces. It is hard to imagine why they think that they have more control over the situation than the Japanese central bank does.

Douglas A. McIntyre