World Economy

Japan Growth Beats Forecasts

Japan has posted its longest economic expansion in over a decade on the back of a pickup in household and company spending
The economy has been picking up steam, mainly on the back of surging exports including smartphones parts and memory chips.The economy has been picking up steam, mainly on the back of surging exports including smartphones parts and memory chips.

Japan’s gross domestic product grew by 1% in the April-June period, marking the sixth straight winning quarter in the longest string of gains since 2006.

The world’s number three economy has been picking up steam, mainly on the back of a surging exports including smartphones parts and memory chips, with investments linked to the Tokyo 2020 Olympics also giving growth a boost, AFP reported.

But the latest GDP figures—which translate into a whopping 4% annualized growth rate—were driven by robust domestic demand and capital spending, which offset a quarterly decline in exports.

Private consumption picked up 0.9% in the second quarter. Individual spending accounts for more than a half of Japan’s GDP. The second quarter growth blew past market expectations for a 0.6% rise, according to figures from the Cabinet Office. It was well up from a 0.4% expansion in January-March GDP.

The labor market is tight and business confidence is high but efforts to lift inflation have fallen flat despite years of aggressive monetary easing by Japan’s central bank.

The latest reading nonetheless means Japan’s economy has had its best string of gains since the tenure of popular former prime minister Junichiro Koizumi.

Monday’s figures are good news for current Prime Minister Shinzo Abe—whose brief and underwhelming first term as premier came directly after Koizumi. A string of short-term leaders followed Abe’s first term before he swept back to power in late 2012 on a pledge to reignite Japan’s once-booming economy with a plan dubbed Abenomics.

The scheme—a mix of huge monetary easing, government spending and reforms to the economy—stoked a stock market rally and fattened corporate profits.

Dodging Recession

The figures need to be put in context. Japan’s data bounces around a lot, yielding the odd stellar quarter–in early 2015, for example, growth hit 4.8%. And preliminary figures can change dramatically. Japan managed to dodge a recession—defined as two consecutive quarters of contraction—later in 2015 thanks to a big upward revision of initial statistics. Hence the apparent market indifference: Japan’s Topix stock index dipped 0.8% on Monday morning.

There are two messages here. First, Japan is now enjoying its longest growth streak in more than a decade. That suggests the economy has grown more resilient under Abe’s reform program, albeit aided by a strengthening global economy and the Bank of Japan’s ultra-easy policies.

Second, household consumption is picking up. On an annualized basis, spending rose 3.7% aided by a near 10% rise in purchases of big-ticket durable goods.

Tailwind for Abenomics

Some critics have cast doubt on the plan, as heavily indebted Japan grapples with low birthrates and a shrinking labor force.

Abe has seen his public support ratings plummet in the past few months over an array of political troubles, including allegations of favoritism to a friend in a business deal. “This is a good result and tailwind for Abenomics,” Shinke Yoshiki, chief economist at Dai-ichi Life Research Institute, said of Monday’s data release.

“Consumption and corporate investment are particularly strong, a result of brisk corporate earnings and improved business confidence.”

In a commentary, Barclays said: “The strength of private consumption reflects an improvement in employment and income conditions (eg, drop in unemployment, four consecutive years of increasing base pay), but likely also such factors as favorable weather during that period.”

Still, wages have not been rising enough to kickstart tepid inflation, and few analysts expect the same kind of growth next quarter. “Japan’s structural problems have not changed: ageing population, decreasing working age population, deteriorating fiscal conditions,” said Junko Nishioka, chief economist of Sumitomo Mitsui Banking Corp.

Japan has been struggling to defeat years of deflation and slow growth that followed the collapse of an equity and property market bubble in the early nineties.

The Bank of Japan, aiming to create 2% inflation as a key part of Tokyo’s growth bid, now expects to reach that goal by sometime in the year to March 2020—four years later than planned.


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