Japan’s economy expands for fifth straight quarter at 0.5%, but spending remains tepid

Japan’s economy grew 0.5 percent in the first three months of 2017, its fifth straight winning quarter and the longest expansion in more than a decade, government data showed Thursday.

Robust exports boosted gross domestic product, up from a 0.3 percent increase in the last quarter of 2016, the Cabinet Office said.

The latest reading matched market expectations.

The world’s No. 3 economy has been picking up steam on the back of strong exports, with investments linked to the Tokyo 2020 Olympics also giving growth a boost. The labor market is tight and business confidence is high.

“Exports have taken the lead in the recovery, and domestic demand wasn’t bad, showing resilience with household spending turning positive,” said Masaki Kuwahara, senior economist at Nomura Securities.

“Looking ahead, the growth rate will slow a bit, if not turn negative, toward the second half of this year as China’s economic indicators are weakening a bit. I’m expecting exports to slow down, weighing on the overall growth rate,” said Kuwahara.

Takashi Shiono, an economist at Credit Suisse Group, said, “It’s a pretty impressive number but I don’t think this can continue for a while.”

“Uncertainties are increasing rapidly with the chaos at the White House and a pickup cycle in global production could end soon.”

Consumer spending remains tepid and efforts to conquer on-off deflation have largely fallen flat despite years of monetary easing by the central bank. Individual spending accounts for more than half of Japan’s GDP.

After zero growth in the previous quarter, private consumption picked up 0.4 percent in the first three months of 2017, matching the rate of increase in the quarters ended June and September 2016.

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.

The figures are good news for current 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 policies — a combination of massive monetary easing, government spending and structural reforms — stoked a stock market rally and fattened corporate profits.

But critics have increasingly expressed doubt about the plan’s success in cementing a lasting recovery, as heavily indebted Japan grapples with low birthrates and a shrinking labor force.

The Bank of Japan, targeting 2 percent inflation as a key part the growth bid, now expects to reach that goal by 2019 — four years later than planned.

Still, the central bank and International Monetary Fund both recently lifted their projections for growth.

A weak yen has helped prop up the economy as it makes exports more competitive and inflates profits when overseas income is repatriated.

An improving global outlook with strong demand for Japanese smartphone parts, memory chips and construction machinery has also been a tailwind, analysts said.

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