World Economy

Japan Dodges Q3 Recession

Japan Dodges Q3 RecessionJapan Dodges Q3 Recession

Japan’s latest recession turns out not to have been a recession at all. The government said on Tuesday that the economy grew at a relatively robust pace last quarter, reversing a more pessimistic estimate it published three weeks ago.

Output in Japan, Asia’s second-largest economy, expanded at an annualized rate of 1% in the three months through September, according to the revised assessment by the cabinet office. The office had originally said the economy contracted by 0.8%, Yahoo reported.

The latest report, which reflected more buoyant data on business investment and a rosier view of consumer spending, painted a broadly positive picture of the economy’s recent performance. Estimates for previous quarters were also lifted, showing stronger gains and less severe reversals.

It could relieve the pressure on Japan’s central bank to do more to support growth. Some economists had been predicting that the bank would soon be forced to expand a stimulus program under which it injects trillions of yen into the economy by buying up government bonds.

The strategy is meant to lower borrowing costs and encourage consumers and businesses to spend, but the apparent 'technical recession', and an accompanying decline in consumer prices, had raised questions about its effectiveness.

The report also could cheer Prime Minister Shinzo Abe, who came to office three years ago on a pledge to ramp up growth. So far his “Abenomics” program, in which the central bank’s stimulus efforts have played a crucial role, has lifted the stock market and helped multinational companies by lowering the yen’s exchange rate. But it has been less successful in passing the gains on to average workers.

Growth Trend

In an economy where trend growth is only slightly above zero, like Japan’s, revisions can more easily make the difference between an increase in output and a decline.

The latest numbers will be subject to further review in the future, though revisions tend to grow smaller as time passes.

"Upbeat business surveys and a rebound in industrial production suggest that economic activity will continue to recover this quarter," Marcel Thieliant of Capital Economics said in a commentary.

C/A Surplus

Current account surplus grew 72.3% from a year earlier in October, the 16th consecutive month of surplus, boosted by plunging oil imports and an increase in the travel surplus, the government said.

Surplus in the current account balance -- one of the widest gauges of a country’s international trade -- stood at ¥1.46 trillion ($227.4 billion) and was also lifted by a goods trade surplus of ¥200.2 billion, the Japan Finance Ministry said.

The goods trade logged the surplus against a deficit of ¥764.9 billion a year earlier, with exports falling 3.7% to ¥6.33 trillion, while imports declined 16.4% to ¥6.13 trillion, the ministry said in a preliminary report.

The value of crude oil imports dropped 49.2% as average oil prices shed 52.5% to $47.88 per barrel during the month. The value of liquefied natural gas imports fell 42.4%.

Japan has been relying heavily on energy imports as most nuclear reactors have remained offline since the March 2011 Fukushima nuclear disaster.

Income Increases

The surplus in the primary income account, which reflects how much Japan earns from its foreign investments, fell 14.4% to ¥1.73 trillion. This was due largely to smaller dividend payments received by companies from units overseas, a ministry official said.

But the value of the primary income account surplus remained high, as a weaker yen helps raise receipts from overseas securities investments.

The yen dropped versus the U.S. dollar by 11.1% year-on-year in the reporting month—to an average ¥120.06 to the dollar. A weaker yen usually supports exports by making products cheaper abroad and lifts the value of overseas revenues in yen terms.

The service balance logged a deficit of ¥337.3 billion, widening from a deficit of ¥209.5 billion a year earlier.

But the travel surplus, a component of the service balance, grew about fourfold to ¥110.7 billion as the yen’s depreciation helped attract foreign tourists to Japan.

The surplus in the travel balance was the largest for October since comparable data became available in 1996, according to the ministry.