By Andrew L. Jaffee

The good economic numbers keep coming out of Japan, but perhaps the best news is that the House of the Rising Sun is starting to experience a little price inflation. No, that is not a typo — I said inflation.

Gross domestic product (GDP) increased 1.7% in the most recent quarter — Japan’s GDP has now shown four straight quarters of growth. Today, CNNMoney announced that:

Japan’s industrial production grew for a fourth straight month in November while retail sales increased year-on-year, data showed Wednesday, the latest in a string of upbeat figures underscoring strong economic growth. …

Data earlier this month showed exports rose 14.7 percent in November, the first double-digit growth in a year as foreigners bought more Japanese cars and electronics.

While increased industrial output is good news in and of itself, one must remember that Japan hobbled through its 10-year recession as a net exporter. The big difference in the recent positive economic numbers is that Japan’s home economy is finally on the mend. Its own consumers are finally spending, rather than stuffing their mattresses full of yen.

Again, CNNMoney:

Domestic demand has also underpinned Japan’s recent economic recovery. …

Separate data released Wednesday showed sales at large retail stores in November increased 0.8 percent year-on-year on a same-store basis, the first rise in 21 months.

All-store retail sales rose 0.1 percent from a year earlier, less than the consensus forecast of 0.8 percent growth, but overall commercial sales, including wholesale, rose a healthy 3.9 percent. …

In a sign of more improvement ahead in consumer sentiment, separate data showed wage earners’ average overtime pay in November rose from a year earlier for the 40th month in a row.

After Japan’s economic collapse in 1989, where property and stock price falls “reduced Japan’s national wealth by 41 percent,” consumers went into a spending hibernation.

When no one spends, companies try to reduce product prices to entice buyers. But if buyers still do not buy, prices go even lower. Company profits fall, hiring decreases, people lose jobs, people spend less, etc., etc. Deflation can be a supply-and-demand vicious cycle. But it gets worse.

One of the most important ways in which companies can grow their businesses is by raising capital through stock and bond offerings. When demand for stocks dries up, companies cannot raise money for expansion, for example, investments in new technology. When stock prices fall, a company’s market value declines, giving it less equity to use for borrowing money from banks.

When property values collapse, there is a similar phenomenon. Home owners are stuck with property they may have wanted to sell, and less equity for use in taking out a loan.

During Japan’s period of economic stagflation (stagnation/deflation), its consumers, in typically conservative fashion, stashed their money in the Yucho.

Japanese have stuffed $3 trillion into the Yucho or postal savings accounts, but have not received much in return. The “Ordinary Savings” account bears a whooping 0.005% APR. But more aggressive investors can get 0.060% from a “Teigaku,” or 3-year certificate of deposit.

In other words, investors are losing money in the Yucho — if you take inflation and taxes into account. The Japanese would have done better burying their yen in a coffee can in the back yard — or stuffing it into mattresses.

Thank G#d things are changing:

Japanese consumer prices rose for the first time in two years in November, signaling an end to seven years of deflation that has undermined the economy and reinforcing expectations of a near-term shift in monetary policy. …

“The data shows the state of deflation is near an end,” said Naoki Iizuka, chief economist at Dai-ichi Life Research Institute.

Japan’s recovery is due to a number of factors, but Prime Minister Junichiro Koizumi can certainly take credit for much of the good news. He has artfully pushed through a slew of much needed reform legislation, including the privatization of the Yucho.

His leadership has seen Japan emerge from one of the developed world’s longest recessions. In this case, “inflation” is not a bad word, but rather a signal that Japan is ready to retake its place as one of the great, dynamic economies.

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Related: Economy, Japan

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