Domestic Consumption Fuels Surge in Japan’s Economic Growth

importsCranes load containers onto a ship at the container wharf in Tokyo port on December 17, 2014. AFP PHOTO / TOSHIFUMI KITAMURA
  • Domestic Consumption Fuels Surge in Japan’s Economic Growth

Japan’s economy grew for a sixth straight quarter, extending the longest expansion in more than a decade, as a strong pick-up in demand at home compensated for softer exports.

  • Gross domestic product increased by an annualized 4.0 percent in the three months ended June 30 (estimate +2.5 percent), compared with a revised 1.5 percent in the previous quarter.
  • Private consumption rose 0.9 percent in the second quarter from the previous three months (estimate +0.5 percent).
  • Business spending advanced 2.4 percent (estimate +1.2 percent).
  • Net exports, or shipments less imports, subtracted 0.3 percentage point from GDP.

Key Takeaways

The last time Japan strung together this many quarters of growth was back in mid-2006, during the government of then-Prime Minister Junichiro Koizumi. Should the economy extend the run of expansion into this quarter, it will be the best performance since 2001. After more than four years under Prime Minister Shinzo Abe, the yen has fallen, corporate profits have soared and the economy is running above its potential growth rate. Yet inflation remains stubbornly low, despite massive monetary stimulus from the central bank. Economists are watching intently for signs that the tightest labor market in decades is beginning to bring wage gains.

In light of the good result, the government isn’t considering any new economic measures at the moment, according to Economic Revitalization Minister Toshimitsu Motegi. He said the effects of previous rounds of stimulus are clear from the strong growth.

There is a risk that the surprisingly good data released on Monday may be substantially revised, if history is anything to go by.

Economist Views

  • “The strength of domestic demand stands out, especially individual consumption, which was better than I had expected,” said Masaki Kuwahara, senior economist at Nomura Securities in Tokyo. “Spending appetite has improved as rising stocks added to the wealth effect, although incomes haven’t increased much.”
  • He cautioned that it may be difficult for spending at this pace to continue if wage earners don’t see bigger pay checks.
  • “Exports seem to have passed their peak and will slow down as the global economic recovery is heading for a pause,” said Kuwahara.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years experience as a foreign exchange research analyst and trader.

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