Japan’s economy grew at the fastest pace in a year last quarter, with solid growth in consumer spending and exports suggesting the expansionary policies of Shinzo Abe, prime minister, are delivering quick and tangible results.
Government data on Thursday showed that real gross domestic product increased by 0.9 per cent in the three months to March, or 3.5 per cent in annualised terms. It was the second consecutive quarter of growth, after a rise in October-December that the government revised upward to 1 per cent.
That’s from the FT’s Jonathan Soble.
Of course, quite a lot happened after the end of Q1 as well.
It was just in early April that the BoJ announced open-ended QE and promised to double the monetary base, while prime minister Shinzo Abe pledged to boost competition in the quasi-monopolistic power sector. Since then the yen broke 100, the stock market continued soaring, and in recent days Japanese government bond yields have sold off. Even activist investors from the US are taking notice.
But it is early days yet. The unexpectedly strong first quarter growth numbers were driven mainly by exports — to be expected given the yen’s continued decline.
However:
For all the signs of economic improvement, companies remained reluctant to invest in new plant and equipment, the data showed. Private sector capital investment fell for the fifth straight quarter, by 0.7 per cent.
Deflation also remained entrenched. The GDP deflator, a measure of price changes, was in negative territory for the 14th straight quarter, at minus 1.2 per cent.
Stoking inflation is a trickier business in Japan than it is elsewhere, given the massive share of government debt owned by domestic investors and households. And if workers don’t enjoy wage gains alongside climbing inflation, they may lose patience with the policy and test the Abe government’s resolve.
See David’s post earlier for some of the other complications involved. A main objective of Abenomics will be convincing Japanese businesses that its policies are credible in the long run: both the Bank of Japan’s commitment to generating positive inflation and the government’s promises to enact structural reforms and make smart fiscal injections. Not an easy task.
We’ll know businesses have bought into it if they start deploying more of the plentiful cash on their balance sheets and building up their labour and capital stock; same with households and spending. It’s too soon to know in either case.
Still, a decent start.