00:00Let's talk a little bit more about Japan's economy. Vicky Price is an international economist.
00:06Great to have you on Global Business Europe again, Vicky.
00:08Now, is this all about U.S. tariff squeezing an export-reliant economy?
00:14I think it was, but what we're seeing is that there has been some normalisation, if you like.
00:20So there has been an agreement now, tariffs have been reduced, and there is a little bit more confidence ahead.
00:25So what we're likely to see, as you rightly say, is that the fourth quarter of the year will be a little bit better.
00:29It was a bit of a surprise that there was quite such a drop in the third quarter, especially since Japan had been doing okay until then.
00:36And what, of course, it does is it confuses a little bit policymakers, because, yes, again, as you suggested,
00:43there is a meeting on the 19th of December to see whether interest rates will be going up.
00:48Interest rates, of course, are very low in Japan right now.
00:50They're only at 0.5 percent, so they are just half a percent, really.
00:55And they may be going up to 0.75 percent.
00:58Well, that's very, very low, and that's way below where inflation is, which is around 3 percent.
01:03So the question is, you know, does the Bank of Japan do something a bit more urgent on this?
01:09Is it going to be worried about what will happen to growth in the future if, indeed, Japan sort of recovers?
01:14Yes. And so there is a bit of a schizophrenic attitude, if I may say, because at the same time, the government itself is putting a lot more money into the economy through a stimulus measure,
01:25cutting subsidies. No, sorry, not cutting subsidies, but actually reintroducing subsidies for energy, for energy, which, of course, will bring sort of hopefully inflation down.
01:36So how can you, on the one hand, be thinking about increasing interest rates when, at the same time, you're trying to stimulate the economy?
01:42You talk about that confusion. So what do you think needs to happen?
01:47Or do you think Japan's economic outlook is going to maybe remain uncertain in the short to medium term?
01:53Well, something needs to probably be done about inflation, because after years and decades of Japan being in a deflation environment,
02:01then suddenly we see inflation there. And, of course, it means for individuals who are not getting at present wages rising at the same rate as inflation,
02:11they will perhaps in the future. But it means that there is an issue about demand in the economy and also investment in the economy.
02:18And I think that's the real problem. So if you raise rates even further, even though they're very, very low,
02:23then that perhaps, you know, will act as a disincentive. But in reality, they're still very negative in real terms.
02:28So you can be increasing interest rates for a while without worrying too much. So there isn't that much of an inconsistency.
02:35It looks like it from the outside. But when you look at what's going on in Japan itself, you've got a situation where, yes,
02:40perhaps mood is improving a little bit, a bit more help from government, a bit more exports.
02:45We've seen exports recover, even car exports going up, semiconductors going up.
02:51So there is certainly some underlying strength in the economy coming back.
02:55So the forecast for this year are for growth perhaps of just over 1% for next year.
03:00Originally, mainly because of the trade concerns, slightly less, 0.9%. It could be better.
03:06Could be better, certainly. Vicky Price, a pleasure talking to you again. Thank you very much.
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