Khaleej Times

Japan’s economy bounces back

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Stanley White and Leika Kihara

tokyo — Japan’s economy grew more than expected in the second quarter, helped by strong household and business spending and recovering from an earlier contractio­n, but global trade tensions loom as major risks to the export and investment outlook.

The rebound in consumer spending is a welcome developmen­t for the Bank of Japan but unlikely to be enough to change its stance that interest rates need to stay low for a very long time to end the country’s deflationa­ry mindset.

While analysts expect the economy to sustain a recovery, some expect escalating global trade disputes will hurt the export and manufactur­ing sector, major drivers of growth in the world’s third largest economy.

“Things are going well, but given questions around trade friction between the United States and China, there is a lot of uncertaint­y whether things will continue to go well,” Finance Minister Taro Aso said.

Japan’s economy expanded 1.9 per cent on an annualised basis in April-June, beating a median market forecast for a 1.4 per cent increase, government data showed on Friday.

That followed a revised 0.9 per cent contractio­n, larger than initial estimates, in the previous quarter, which put an end to the best run of growth since the 1980s bubble economy.

Compared with the previous quarter, gross domestic product rose 0.5 per cent, more than the median estimate for a 0.3 per cent increase and following a 0.2 per cent contractio­n in January-March.

In a sign the economic recovery was broadening, domestic demand

things are going well, but given questions around trade friction between the uS and China, there is a lot of uncertaint­y whether things will continue to go well

Taro Aso, Japanese Finance Minister

was the main driver of growth. Private consumptio­n, which accounts for about 60 per cent of the economy, was the biggest contributo­r, rising 0.7 per cent on brisk demand for cars and home appliances, the data showed.

The gain was more than the median estimate for a 0.2 per cent increase and marked a rebound from a revised 0.2 per cent fall in the first quarter, it showed.

“For the third and fourth quarters, we’ve pencilled in similar growth to the second quarter, but the risks are a bit to the downside,” said Marcel Thieliant, senior Japan economist at Capital Economics.

“The economy is running into capacity constraint­s. We are quite certain there will be some sort of tariffs on Japanese cars. It’s a question of how much.”

Many industries face labour shortages due to a rapidly ageing population. This helps push up wages but has also caused capacity constraint­s because some companies are shortening operating hours due to a lack of workers. Japan certainly needs higher consumer spending to push up inflation, but with consumer prices taking so long to rise, economists have pushed back the timeframe in which they expect the BoJ to unwind monetary easing until 2020 or later, a Reuters poll on Thursday showed.

Capital expenditur­e rose 1.3 per cent, exceeding market forecasts for a 0.6 percent increase and marking the biggest gain since October-December 2016.

The external environmen­t, however, was less favourable, even without any direct impact to exports from increasing trade hostilitie­s between the United States and its major trading partners over the quarter.

External demand, or exports minus imports, subtracted 0.1 percentage point from growth, missing expectatio­ns for a 0.1 percentage point contributi­on.

“If the trade conflict heightens uncertaint­y over the outlook, companies could rein in spending, even if Washington does not impose higher tariffs on Japanese goods,” Yusuke Ichikawa, senior economist at Mizuho Research Institute, said.

US President Donald Trump is pushing Tokyo to sign a bilateral free-trade agreement and has threatened to impose higher tariffs on auto imports including those from Japan. —

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 ?? AP ?? If Japan wants to push up inflation, it certainly needs spending to be higher. —
AP If Japan wants to push up inflation, it certainly needs spending to be higher. —

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