Economy

Just as China faces a Japan-style ‘lost decade,’ Japan thinks it’s near a ‘turning point’ in decades-long deflation battle – Fortune

Published

1 year ago

August 30, 2023

China’s economic woes are starting to resemble the decades-long problems of Japan.

In the 1970s and ’80s, Japan’s economy quickly developed into a powerhouse, just as China’s has over the past few decades. The country’s technological advancement, export-led growth, and centralized economy even earned it the moniker “Japan Inc.” among Westerners.

Japanese unemployment remained low, and asset prices in the country surged during this period, particularly in the 1980s when the economy grew at an average annual rate of 3.9%, topping the 3% average in the U.S. over that decade. But eventually, excessive enthusiasm over Japan’s prospects led to stock and real estate bubbles that began to unravel in the late ’80s. Between late 1989 and mid-1992, the Japanese stock market sank 60%. And over the next decade, land values continued to decline, dropping 80% from their September 1990 peak by the end of 1999.

As a result, throughout the ’90s, the Japanese economy grew just 1% annually, falling behind other developed nations. And since then, Japan’s aging population and rising debt have led to persistent economic stagnation and prolonged periods of deflation, forcing the Bank of Japan to keep interest rates near zero or negative for more than 25 years.

Now, as China’s economy transitions from a period of rapid export-led and debt-fueled expansion toward a more consumer-centric model, a crop of familiar issues have surfaced in that country.

An ongoing real estate crisis, an aging population, surging youth unemployment, and trillions of dollars in burdensome local government debt have created a crisis of confidence among both Chinese consumers and foreign investors. And a recent economic slowdown in China even led inflation to fall 0.3% year over year in July, marking the first period of deflation in the country since the COVID shock of 2020.

Some experts have cautioned that one month’s data doesn’t make a trend, and long-term Chinese deflation is far from a certainty, but Richard Koo, chief economist at Nomura Research Institute, argues that China is undergoing a balance sheet recession that could lead to a “lost decade” similar to what Japan experienced in the ’90s. This is when consumers and businesses opt to save money or pay down debt instead of investing or spending, which leads to a lack of economic growth and falling prices.

But in an ironic twist, as China faces the prospect of a slowing economy and persistent deflation, Japan may finally be climbing out of its decades-long economic nightmare.

The end of Japan’s stagnation and deflation?

Japan’s core inflation, which excludes fresh food products, rose 3.1% in July, following a 3.3% increase in June. It marked the 16th straight month that core inflation held above the Bank of Japan’s 2% target.

In its annual economic white paper, Japan’s Cabinet Office argued that the rise in inflation could signal the end of an era of sluggish economic growth and deflation.

“Japan has seen price and wage rises broaden since the spring of 2022. Such changes suggest the economy is reaching a turning point in its 25-year battle with deflation,” the government said, adding that “we shouldn’t dismiss the fact a window of opportunity may be opening to exit deflation.”

The government noted that Japanese companies are passing on higher production costs to consumers and argued that a tight labor market means wages are more likely to rise now than in previous decades. The recent rise in Japanese inflation is beginning to change consumers’ expectations for future price hikes as well, which is critical for preventing a return to deflation, the government added in its white paper.

Investors, recognizing the issues facing the Chinese economy in comparison to Japan’s post-COVID economic rebound, have sent the nation’s stock markets in opposite directions. The CSI 300, which tracks the performance of the top 300 firms on the Shanghai and Shenzhen exchanges, has dropped 3% year to date, while the Nikkei 225, an index that serves as a proxy for the Tokyo Stock Exchange, has jumped 25% over the same period.

Warren Buffett’s Berkshire Hathaway also made waves this year with its decision to enter Japan in a big way. Berkshire now owns more than 8% of each of the top five conglomerates in Japan—Itochu, Mitsubishi, Mitsui, Sumitomo, and Marubeni.

Although investors are growing increasingly optimistic about Japan’s prospects and the country’s government certainly struck an optimistic tone in its annual report on Tuesday, it was also careful not to declare victory over deflation too soon.

“We need to eradicate the sticky deflationary mindset besetting households and companies,” it said. “We must be absolutely certain we aren’t ruining the green shoots emerging toward overcoming deflation.”

And it makes sense that the government would be so cautious. Even amid negative interest rates, Japanese deflation and economic stagnation have persisted for decades, leading Japanese firms to lose power on the global stage. In 1995, when Fortune released its first Global 500 list, measuring the world’s largest firms by revenue, 149 Japanese companies were featured, and six firms landed in the top 10. In 2022, just 49 Japanese companies made the list, and not a single one made the top 10.

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Business

A timeline of events in the bread price-fixing scandal

Published

5 hours ago

September 19, 2024

Anne Joseph

Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

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Economy

S&P/TSX composite up more than 250 points, U.S. stock markets also higher

Published

5 hours ago

September 19, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

Published

19 hours ago

September 18, 2024

Anne Joseph

VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

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