In a note out on Tuesday, Woolnough explains that the strength of economies should be measured by economic output and not equity market performance alone.
At first glance, he admits that national data bear out the view that Japan has lagged most countries in terms of nominal and real economic growth, but more important than these simple measures, he says, is GDP per head.
“The fact that one country grows more than another is not to be celebrated economically if it is in fact engendered solely by an increase in population,” he says.
On this point too, however, he admits, Japan’s performance still isn’t great, albeit better than other measures, primarily because of the changing nature of Japan’s demographics. A truer account of GDP per head, looks at the size of the working population, Woolnough argues (which in Japan has shrunk in recent years) rather than the entire population.
By this measure, as can be seen from the graph below, Woolnough says, the Japanese situation is improving and is decidedly better than it looks at first glance.
“In fact monetary and fiscal policy has worked in Japan. Low inflation and the zero bound of monetary policy is something we and policy makers naturally fear. Maybe we fear it too much based on simple analysis of headline numbers.”
