How the West might avoid a Japan-style slump

It's still possible that Britain will follow Japan into a long, drawn-out deflationary hell. But there's one thing we have that the Japanese didn't: the continuing availability of easy credit.

You can't open a paper these days without seeing something about how the West is turning into Japan.

We are apparently on the verge of setting off on a long and depressing deflationary journey during which bank lending will contract, consumer credit will disappear, prices will keep falling, stock markets will collapse and no one will ever buy a new dress again.

Regular readers will know that I have enormous sympathy with this view. But there are a few things that do make me wonder if it will really unfold in the same way as it has for the poor Japanese.

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One of the main things holding back consumer spending in Japan in the 1990s was the utter lack of credit availability. When I first arrived in Tokyo in 1992 credit cards were almost unheard of. You could use an Amex in a couple of extra smart shops but that really was about it.

The same was true when I left six years later. If ordinary Japanese people wanted money and couldn't borrow it from a bank (which generally you couldn't) they went to a consumer finance company where they paid 30% odd for the pleasure.

But that wasn't a particularly socially acceptable thing to be doing: it was a marginal activity for the semi desperate. Here, in the middle of our own banking crisis, things are completely different.

Credit cards are not only common and universally accepted even when paying the tiniest of bills (and household bills for that matter) but they still come on incredibly easy terms.

Take the most recent offering from the AA. Get one of these and you can buy what you like and pay no interest for 12 months. The same goes for the Tesco Clubcard credit card which also gives you 0% for nine months on your balance transfers.

My colleague Ruth Jackson wrote about more of these deals this week, but the point is that, had a Japanese consumer seen the like of them back in 1995, she would have thought she'd somehow arrived in shopping heaven.

I'm not sure quite what to back out from this thought in terms of how our banking crisis driven recession will unfold from here. But, be it a good or a bad thing, 0% interest for 12 months just doesn't sound very deflationary does it?

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.