Rise in Japanese household consumption offers good news, but caution needed
The Japanese consumer is perking up. Figures released recently showed GDP grew unexpectedly fast in the second quarter. The data is volatile and often revised. But the unbroken run of expansion, now 18 months long, is good news. Rising household consumption is even better news.
Annualized growth of 4 percent from April through June was far better than the 2.5 percent most economists were expecting.
The number is also impressive on its own terms. Most developed countries would love that kind of economic performance, although few are used to looking to Japan, long beset by economic stagna- tion, for inspiration.
That said, 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 percent. 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 percent on Monday morning.
There are two messages here. First, Japan is now enjoying its longest growth streak in more than a decade. That sug- gests the economy has grown more resilient under Prime Minister Shinzo Abe’s reform program, albeit aided by a strengthening global economy and the ultra- easy policies deployed by the Bank of Japan ( BOJ). As Abe battles to regain popularity, he will welcome even marginally helpful headlines.
Second, household consumption is picking up. On an annualized basis, spending rose 3.7 percent, aided by a near 10 percent rise in purchases of bigticket durable goods.
A key goal of Abenomics is to create a virtuous circle where workers earn more, spend more, and push prices up, creating quicker inflation, and thus more pay rises. That has proven a tall order so far. Overall wage growth has lagged a tight labor market; and last month the BOJ pushed back its goal of hitting 2 percent inflation for a sixth time. Extra spending on cars and meals alone will not make the difference, but it is a step in the right direction.