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Japanese economy posts longest expansion in more than a decade Japanese economy posts longest expansion in more than a decade
(about 11 hours later)
The Japanese economy has recorded its longest economic expansion in more than a decade after official data showed that it grew at 1% in the last quarter. Japan’s economy expanded at the fastest pace for more than two years in the three months to June, with domestic spending accelerating as the country prepares for the 2020 Toyko Olympics and low levels of unemployment encouraged businesses to invest. The world’s third largest economy recorded an expansion in second-quarter gross domestic product at an annualised rate of 4%, according to figures from the cabinet office on Monday, making the country the fastest-growing of the G7 wealthy nations.The data comes as a shot in the arm amid rising regional tensions sparked by the US president, Donald Trump, and North Korea’s Kim Jong-un, a war of words that rattled global stock markets last week and could threaten Japan, its economy and the rest of the world.
Recording its sixth straight quarter of growth, the economy blew past market expectations with a 0.6% rise in the April-June period, according to figures from the cabinet office on Monday. Japan is shrugging off decades of sluggish growth that it has been attempting to counter with a massive money printing programme championed by the prime minister, Shinzo Abe, to stimulate bank lending, investment from companies and buying among consumers.
The better-than-expected figure – which equates to a storming annualised figure of 4% – came on the back of robust domestic demand and capital spending, which offset a decline in exports. The factors that propelled the most recent growth in GDP were led by rising domestic activity, as consumer spending accelerated significantly, while low unemployment helped wages to grow faster than in the previous quarter. On a less positive note, net exports declined by 0.3%.The overall result was much stronger than expected by the market, as economists had predicted the country would grow by 2.5% on an annualised basis in the second quarter. Japan grew at 1% in the quarter alone, against expectations for a 0.6% expansion.
Private consumption grew at 0.9%, representing a boost for government policies aimed at encouraging more spending. Consumption accounts for more than a half of Japan’s GDP but has been sluggish for years.
The world’s number three economy has been picking up steam, with investments linked to the Tokyo 2020 Olympics also giving growth a boost. The labour market is tight and business confidence is high.
The Nikkei average of leading stocks has risen more than 30% in the past year, helped by growing optimism but also the weaker yen. However, it was off by 0.8% on Monday amid continued tension between the US and North Korea and a stronger currency offset the benefits of the good GDP figures.
Japan GDP Surges 4%, Most In Two Years, On Jump In Government Stimulus Spending https://t.co/eoZHSr2LhKJapan GDP Surges 4%, Most In Two Years, On Jump In Government Stimulus Spending https://t.co/eoZHSr2LhK
“The engines of consumer spending and capital expenditure both fired well in the second quarter, and that’s why domestic demand was so strong,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute. Japan is now on course for its seventh consecutive quarter of positive GDP growth, which would mark the longest expansion since the turn of the century, as it prepares to host the 2020 Olympic Games in Tokyo.
“The pace of growth may moderate slightly, but we are still in recovery mode. This is a positive development for inflation.” Preparations for the games may have helped to contribute to growth in public investments, while high levels of employment have also pushed businesses to invest in capital projects, helping to boost the economy, according to economists at French bank Société Générale.
Toshimitsu Motegi, the economy minister, was more cautious on the outlook, reflecting some investor warnings that the figure was likely to be revised downwards later in the year. Faster growth could prompt the Bank of Japan to consider ending its quantitative easing bond buying programme, but the stimulus package is not expected to be removed entirely until 2021 to help encourage sustainable levels of growth. “Even with continued strong economic growth, we believe that the BoJ will continue its easing framework for some time yet,” said Takuji Aida and Arata Oto at Société Générale. “The prolonged state of monetary easing should further help Japan’s economy remain on a steady growth path.”
“If you ask me whether private consumption has fully recovered, I would say it still lacks strength in some areas, which will need to be followed with policy,” Motegi said. Abe has pledged to reignite Japan’s economy with a plan dubbed “Abenomics”, a package of reforms and government spending coupled with loose monetary policy from the BoJ. The country has for years been struggling to defeat deflation and slow growth that followed a stock market collapse and property market bubble in the early 1990s.
“We’ll make sure that the domestic demand-led recovery continues. What is needed is supply-side reform. We’ll focus our efforts on human resource investment, improvement in productivity, and new growth strategies.”
The latest reading nonetheless means Japan’s economy has had its best string of gains since 2006, during the tenure of popular former prime minister Junichiro Koizumi.
Monday’s figures were also good news for prime minister Shinzo Abe, whose brief and underwhelming first term as Japan’s premier came directly after Koizumi.
A string of short-term leaders followed before Abe 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.
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 90s.