Exports Drive Japan’s Economy to Unexpectedly Strong Growth

Japan’s economy grew more than forecast in the three months through September, as a rebound in exports compensated for continued weak spending at home by people and companies.

Key Points

• Gross domestic product expanded by an annualized 2.2 percent, according to data released by the Cabinet Office on Monday (median estimate of economists +0.8 percent).
• Private consumption rose 0.1 percent (estimate 0 percent).
• Business spending was unchanged (estimate +0.2 percent).
• Net exports, or shipments less imports, added 0.5 percentage point to GDP.
• The GDP deflator fell 0.1 percent from a year earlier.

The surprisingly strong expansion, the biggest since early 2015, will likely provide some relief to Japanese Prime Minister Shinzo Abe as he faces the possible economic fallout from Donald Trump’s U.S. election victory. Trump has said he strongly opposed a trade pact at the center of Abe’s economic reform policies, and if his campaign rhetoric on trade becomes policy, Japanese companies could take a hit in one of their biggest markets.

Economists say another key question is whether demand among Japanese consumers can improve. Exports have compensated for weak domestic demand, with the value of shipments abroad growing in August and September, when adjusted for price changes, but stagnant wages have left most Japanese consumers reluctant to spend.

• “It would be a mistake to think Japan’s economy is gaining momentum given today’s GDP data,” said Norio Miyagawa, senior economist at Mizuho Securities Co. in Tokyo. “The worst is over but it’s not accelerating. I don’t think exports can continue to be a strong driver like today’s report suggested. If Trump boosts spending and raises U.S. growth, that would be a plus for Japan but there isn’t much momentum in the rest of global economy.”
• Japan’s economy will continue to recover in the fourth quarter thanks to improving external demand lifting exports, but “domestic demand, such as private consumption and capital spending, isn’t that strong,” said Yoshiki Shinke, an economist at Dai-ichi Life Research Institute in Tokyo.
• Combined with a recent weakening of the yen, the latest GDP figures reduce pressure on the Bank of Japan to introduce more monetary stimulus, Marcel Thieliant, senior Japan economist at Capital Economics, wrote in a note.

The Details

• Private inventories subtracted 0.1 percentage point from GDP in the third quarter.
• Measured quarter on quarter, GDP grew 0.5 percent (estimate +0.2 percent).
• Government consumption rose 0.4% from the previous quarter, adding 0.1 percentage point to quarterly growth.