I Ja­pan en­joys run of sus­tained growth

Con­sump­tion and ex­ports drive long­est gain in GDP for more than a decade


Ja­pan has posted its long­est run of sus­tained growth, at five straight quar­ters, in more than a decade as stim­u­la­tive pol­icy and a health­ier global economy lead to a pe­riod of ro­bust progress.—

Ja­pan has recorded its long­est run of sus­tained growth in more than a decade as stim­u­la­tive pol­icy and a health­ier global economy lead to a pe­riod of ro­bust progress.

Growth for the first quar­ter of 2017 came in at an an­nu­alised 2.2 per cent, ac­cord­ing to the Cabi­net Of­fice, mark­ing five quar­ters of con­tin­u­ous ex­pan­sion in gross do­mes­tic prod­uct.

The fig­ure beat the con­sen­sus an­a­lyst fore­cast of 1.7 per cent and is far above Ja­pan’s long-run growth po­ten­tial of roughly 0.7 per cent. That sug­gests the economy is us­ing up spare ca­pac­ity and un­em­ploy­ment will keep on fall­ing.

Sus­tained ex­pan­sion sig­nals the Ja­panese economy has re­gained its mo­men­tum fol­low­ing the con­sump­tion tax rise of 2014 and emerg­ing mar­ket weak­ness in 2015 that led to a pro­longed slow­down.

The data will boost the gov­ern­ment of Shinzo Abe, prime min­is­ter, and give Haruhiko Kuroda, Bank of Ja­pan gover­nor, re­newed hope of hit­ting his 2 per cent in­fla­tion ob­jec­tive.

“It was ba­si­cally in line with our ex­pec­ta­tions,” said Masamichi Adachi, an economist at JPMor­gan in Tokyo. “The real side of the economy is in a very nice state.”

But he pointed to a drop-off in nom­i­nal growth — the size of the economy with­out ad­just­ing for prices — which fell by an an­nu­alised 0.1 per cent be­cause com­pa­nies did not pass on higher im­port costs to con­sumers. That high­lights Mr Kuroda’s strug­gle to gen­er­ate in­fla­tion, with head­line con­sumer prices up by just 0.2 per cent on a year ago in April.

“The real side is good but still the nom­i­nal side is vul­ner­a­ble,” said Mr Adachi. “There is a tug of war be­tween the pull from growth on one side and the de­fla­tion­ary mind­set in the cor­po­rate and house­hold sec­tors on the other.”

Growth was well-bal­anced across the economy, with con­sump­tion and ex­ports the big­gest driv­ing forces. Net ex­ports con­trib­uted 0.6 per­cent­age points of the to­tal, high­light­ing how weak­ness in the yen since the elec­tion of Don­ald Trump as US pres­i­dent has boosted Ja­pan’s economy.

The yen weak­ened from a range around ¥100-105 to ¥110-115 against the dol­lar fol­low­ing Mr Trump’s elec­tion. It traded 0.4 per cent weaker at ¥111.3 fol­low­ing the GDP data.

Con­sump­tion con­trib­uted 0.8 per- cen­t­age points to the to­tal. Per­sis­tent weak­ness in con­sumer spend­ing has been one of Ja­pan’s big­gest prob­lems in re­cent years. The pick-up sug­gests con­sumers may fi­nally be gain­ing con­fi­dence that higher wages will last, an en­cour­ag­ing sign for the BoJ.

“The sav­ings rate has stayed high, chiefly due to the slump for durable goods from the con­sump­tion tax hike in April 2014, but it appears to fi­nally be nor­mal­is­ing,” said Takeshi Ya­m­aguchi, an economist at Mor­gan Stan­ley in Tokyo.

Res­i­den­tial in­vest­ment, busi­ness in­vest­ment and gov­ern­ment con­sump­tion each con­trib­uted 0.1 per­cent­age points to growth. But public in­vest­ment — ex­pected to rise, given fis­cal stim­u­lus plans an­nounced by the gov­ern­ment last year — came in flat.

In­ven­tory growth con­trib­uted 0.4 per­cent­age points to the to­tal.

The growth data will boost the gov­ern­ment of Shinzo Abe

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