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Japanese Domestic Demand and GDP Jump Towards New Life

By Patrick Higgins  |  14/08/2017 12:42
Japan's economy, the world's third-largest, has grown at its quickest pace in two years.
 
Q2 GDP growth was clocked in at 4% by Japanese government data, far beyond previous median estimations for 2.5%, and the largest margin of growth since Q1 of 2015.  For 2017, Q2's growth exceeded that of Q1 by a full percentage point.
 
The levels of consumer confidence and capital investments rose at speeds not seen in three years.  Capital investment outputs for Q2 were 2.4%, double the median expectation.  Additionally, private consumption levels (2/3 of Japanese GDP) rose by 0.9% in Q2, well-up from the median estimate of 0.5%.
 
Relatedly, per the release of the Q2 data, the Japanese economy has now seen growth for six straight quarters.  This pattern is the largest stretch of growth since 2005-2006.
 
With the Japanese labour market nearing capacity, similarly to its American counterpart, it is thought that this has pushed domestic expenditures towards stronger levels of growth.  To the benefit of Japan's economic recovery efforts, Japanese consumers spent more on cars, appliances for the home, and eating-out, indicating that the low levels consumer spending previously seen in Japan may no longer be such an Achilles' heel for the Japanese economy.
 
The Bank of Japan (BOJ) is cautiously hopeful as such, as sustained consumer spending would allow for the BOJ to implement further stimulus policies to facilitate higher levels of inflation, desperately needed for Japan's economy to return to its previous competitiveness and combat deflation.  Deflation, a persistent problem for Japan since the asset bubble burst in the 1990's has pushed down consumer expenditures and increased the real value of debt.  Deflation's impact on debt value has been particularly challenging for Japan's government, as the level of public debt in Japan is over 250% of its GDP, well beyond levels seen in other debt-laden countries such as Portugal and Greece.
 
The Japanese government, headed by Shinzo Abe, have been actively trying to counter deflation and restore Japanese GDP growth to healthy levels since 2013.  Known as, "Abenomics," the government has been conducting large-scale QE and stimulus operations.  Getting Japan out of the economic rut it had fallen into proved easier said than done, as the BOJ has pushed back its 2% inflation target six times in four years, mainly due to persistent weak consumer spending.  This new data provides a fresh incentive for Prime Minister Abe and the BOJ to continue the policies they have been implementing.  Per a statement from the Japanese Economy Minister Toshimitsu Motegi, the government will continue to push for a "domestic demand-led recovery," and, "new growth strategies."  It is unlikely changes in Japanese growth blueprints will be seen as long as inflation remains below 2%, but these jumps in domestic spending and GDP growth are welcomed boons to the Abenomics programs of Japan's government.
 
 

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