Japan’s Economy on a Warm Streak

Japan Investment Property

Consumer Spending

15 Jun, 2017 –

TOKYO — Japan’s economic engine may not exactly be roaring, but there is a definite hum in the air. The economy grew for a fifth consecutive quarter at the start of 2017, the longest stretch of growth in more than a decade. The government of Prime Minister Shinzo Abe has been trying for four and a half years to coax the economy into a higher gear. Although Japan’s output is still the world’s third-largest, after the United States and China, consistent growth has been elusive — the result of headwinds like a declining population and deflation.

What Happened?

Japanese gross domestic product increased by 2.2 percent in annualized terms in the three months through March, the government’s Cabinet Office said in a preliminary estimate on Thursday. The economy has now been expanding for a longer period than at any time since 2005-6, when it grew for six quarters in a row.

The pace of expansion also accelerated from the previous quarter, and was stronger than economists had expected. Analysts surveyed by news agencies had forecast a growth rate of 1.7 percent, on average.

What Is Driving Growth?

Exports have been lifting output since the start of the expansion, and they did so again last quarter. A broadly recovering global economy is helping, as is a weaker yen, which makes Japanese cars, electronic components and other goods more affordable abroad. (Japan’s trade surplus irritates the Trump administration, which has criticized some of the country’s practices.)

The domestic side of the economy has been shakier, with spending by consumers and businesses mostly weak and inconsistent. But in the latest quarter, consumption and business investment both rose.

Is the Economy on a Hot Streak?

A warm one, certainly. Output grew 1 percent in all of 2016 — not exactly China-fast, but about twice what economists estimate Japan should be able to achieve given its shrinking pool of workers and consumers. For the first few years after Mr. Abe came to office, in 2012, on a promise to kick-start growth, the economy lurched between expansion and contraction. Now it appears to have found a more stable groove.

Is ‘Abenomics’ Succeeding?

The government and the central bank have been pouring money into the economy, and there’s little doubt that those moves have helped lift growth. But a crucial ingredient is missing: inflation.

The big idea behind “Abenomics,” as Mr. Abe’s strategy is known, was to engineer a rise in consumer prices, which would in turn lift corporate profits and workers’ pay. That, the government said, would make the economy grow not only faster but also more consistently. Prices have barely budged, however, leaving many economists speculating that the current streak, though welcome, will fade.

(Source – “The New York Times“, Pic – Shopping in Japan / “Ivan Walsh“)

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