Today’s chart is another one for the obscure indicators; the number of business failures in Japan. Almost a chart you want to look at upside down as more failures generally happen during recessions, and less failures generally happen when the economy is booming. While this sort of indicator can also reflect the actual number of businesses and pace of start-ups, when you see the number of failures hit 25 year lows you start to ponder…
It’s worth a thought exercise to consider why business failures might be so low in Japan lately. The starting point is the cyclical view, and while the PMI has been in and out of contraction, the unemployment rate has fallen to 20 year lows so there is some positive trends underway in Japan’s economy and this is likely part of the reason. The other point is ultra-easy monetary policy, with the Bank of Japan doing “stupid things” like negative interest rates and QE this probably serves to help keep businesses on life support; delaying the inevitable. On a related note, until recently, the trend in the Japanese Yen probably also helped. It will pay to keep an eye on this indicator as a turn up will likely reflect a turn in policy accommodation – whether intentional or not, or a more unambiguous downturn in the economy.
Bottom line: Business failures are at around 25 year lows in Japan reflecting economic trends and ultra-accommodative monetary policy.