Japan’s economy picks up steam

Japan’s long-awaited economic recovery gathered pace in the second quarter of 2017, with a 1.0% expansion from Q1 comfortably ahead of a projected 0.6%.

This gave the world’s third-largest economy an annualised expansion rate of 4.0% in gross domestic product (GDP) over the period April to June, also well ahead of the median estimate of 2.5% and the best figure since Q1 2015, according to a preliminary estimate by the government’s Cabinet Office.

Japan’s economy has now expanded for six consecutive quarters, the first time it has reported continuous growth for an 18-month period since 2005-6.

The better figures appear to show that the programme dubbed ‘Abenomics’, that prime minister Shinzo Abe has pursued since he was returned to power in late 2012. For a long time the policy was seen as assisting Japan’s exporters, but doing little to help domestic income or spending.

However, consumer spending in Q2 2017 grew by 3.7% at an annualised rate and imports of good rose strongly in the quarter.

Japanese corporates also appear to be more optimistic, with business investment growing by nearly 10%. A survey released in April by US real estate group CBRE found that Japanese multinationals were keen to expand in key Asia Pacific markets.

Growth was further helped by a major government spending programme announced by Abe a year ago, with public investment growing at a rate of 22%, as well as investments linked to Tokyo’s forthcoming hosting of the Olympic Games in 2020.

Economy minister Toshimitsu Motegi, struck a note of caution on the country’s economic outlook however, reflecting warnings from some investors that the figure could be revised downwards later in the year.

“If you ask me whether private consumption has fully recovered, I would say it still lacks strength in some areas, which will need to be followed with policy,” Motegi said.

“We’ll make sure that the domestic demand-led recovery continues. What is needed is supply-side reform. We’ll focus our efforts on human resource investment, improvement in productivity, and new growth strategies.”

Last month, the Bank of Japan (BoJ) raised its forecasts for the fiscal years 2017-18 and 2018-19 to 1.8% and 1.4% respectively, against its earlier projections of 1.6% and 1.3%. It also pushed back the date by which it expects inflation, which is still subdued, to move back to its target rate of 2%.

The BoJ said that “Japan’s economy is likely to continue its moderate expansion. Through fiscal 2018, domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors, on the back of highly accommodative financial conditions and fiscal spending through the government’s large-scale stimulus measures.”

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