World Economy
0

Japan Likely Posts 2nd Best Stretch of Post-War Growth

Japan’s economy expanded at an annualized 2.5% in the second quarter as consumer and company spending picked up, with steady growth likely to be sustained in the coming quarters
Japan’s manufacturing PMI stood at 52.90 in September 2017, compared to 52.20 in August 2017.Japan’s manufacturing PMI stood at 52.90 in September 2017, compared to 52.20 in August 2017.

Japan’s economy likely posted its equal second-best stretch of uninterrupted post-war growth, a government index for August showed Friday, a nod to strong global demand and Prime Minister Shinzo Abe’s aggressive stimulus measures.

The latest reading comes as Abe heads to a general election later this month and puts his “Abenomics” policies in the spotlight, Reuters reported.

However, despite the strong headline number, analysts say the benefits of growth have failed to reach broader sectors of the economy with generally anemic wages leaving households behind.

The index of coincident economic indicators rose a preliminary 1.9 points to 117.6 in August from the previous month, the level seen in March 2014, the Cabinet Office said. This would mark 57 straight months of growth, matching the second-best stretch of expansion since World War Two, seen between 1965 to 1970.

The coincident index is used to measure the state of the economy and is among indicators the government uses when deciding whether the economy is expanding or in recession. It includes a range of readings such as factory output, employment and retail sales.

Modest Momentum

Under the government’s definition, the economy has been in an expansion since December 2012, when Abe came into office. The economy posted its best stretch of consecutive monthly growth of 73 months from February 2002 to February 2008.

Japan’s economy expanded at an annualized 2.5% in the second quarter as consumer and company spending picked up, with steady growth likely to be sustained in coming quarters.

But while there has been some economic momentum, it remains historically modest: the economy grew an average 1.2% during the current expansion, much slower than 11.4% average growth during the 1965 to 1970 expansion, SMBC Nikko Securities said.

Other data on Friday showed Japanese workers’ wages rose in August from a year earlier in a sign of a gradual pick-up in household income. And a Bank of Japan survey showed households’ mood improved in September from three months ago, though fewer of them expected prices to rise a year from now.

The jobless rate, which was at 4.3% when Abe took office, fell to 2.8% in August. Corporate earnings rose 75% during the period, as the yen fell more than 30% and the Nikkei stock average doubled in value.

“Companies have enjoyed record profits but wages aren’t growing much,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“Most of the increase in corporate profits came from factors like falling oil costs and a weak yen, and the recovery in sales wasn’t as strong as past economic expansions. This is making companies cautious of raising wages.”

Some economists say companies may keep hoarding cash as they see little growth prospects in Japan’s rapidly ageing society. “It’s hard to predict the future so companies tend to save cash. They can’t raise prices as they may lose customers,” said Yoshiki Shinke, chief economist at Dai-ichi Research Institute. “It would be better if the economy sees growth stabilize above its potential.”

Manufacturing PMI Up

Japan’s manufacturing PMI stood at 52.90 in September 2017, compared to 52.20 in August 2017. The PMI figure beat the preliminary market estimation of 52.5, MarketRealist reported.

The stronger improvement in Japan’s manufacturing PMI in September 2017 was mainly due to the following factors:

- Production volume and output improved at a higher rate in September 2017

- New orders and export orders expanded at a faster pace

- However, employment in the manufacturing sector also rose at a slower pace.

The rise in Japan’s manufacturing is mainly due to the improvement in both domestic demand and overseas demand. The business confidence index of Japan also rose strongly in September 2017. It stood at 22 in September, compared to 17 in the previous month. The stronger rise in business confidence signals that businesses are becoming optimistic about the demand outlook.

The improvement in global demand is helping Japan’s economy. However, the geopolitical risk that arose from North Korea affected the movement of the yen. The stronger Japanese yen could impact Japan’s exports. However, the stronger export order in the past year is helping the economy.

 

Add new comment

Read our comment policy before posting your viewpoints

Financialtribune.com