A surging stock market and a renewed “wealth effect” helped push the Japanese economy to its sixth consecutive quarter of growth — the longest unbroken streak in more than a decade and a possible lifeline for the foundering “Abenomics” revival programme.
According to a preliminary estimate from the cabinet office, Japan’s gross domestic product grew an annualised 4 per cent in the April to June quarter — higher than the market’s 2.5 per cent median expectations and a strong improvement on the revised 1.5 per cent annualised figure for the quarter to March.
Propelled by a combination of consumer and capital spending, quarter-on-quarter GDP rose 1 per cent in the second quarter, up from a revised 0.4 per cent rise in the previous quarter and well ahead of economists’ median forecast of 0.6 per cent.
Underlying the headline figures, said economists, were details that suggested that strong growth in the world’s third-biggest economy would continue in the third quarter. If the trend continues, Japan could end the September quarter atop the longest run of quarterly growth since the turn of the century.
That path seems likely, economists said. Inventories, said Rob Carnell, chief Asia-Pacific economist at ING, had no effect on the overall second-quarter GDP figures, and net exports actually represented a slight drag.
“In other words, this was not one of those fluky one-offs that was caused by a surge in inventories that will be worked down in coming quarters, or one of those random spikes caused by exports and imports growing out of sync,” he said.
He added that the unexpectedly strong GDP readout could reignite market speculation on when Japan’s central bank would consider its exit from its massive quantitative and qualitative easing (QQE) policy.
Private consumption, said Citigroup economist Kiichi Murashima, was one of the particularly encouraging details of the report.
Domestic demand grew 1.3 per cent compared with the March quarter — a substantial jump from the previous quarter’s rise of 0.2 per cent. Private consumption likewise rose 0.9 per cent last quarter, more than double the 0.4 per cent pace of growth in the three months ended March and adding half a percentage point to headline GDP.
There was a replacement cycle at play for sales of electronics and autos, he added, and spending rose despite the fact that Japan’s historically tight labour market was still delivering only sluggish rises in wages.
“Most important is the stabilisation of prices in daily products during the quarter, that supported real private consumption by pushing up the purchasing power of consumers, especially pensioners,” said Mr Murashima.
Other economists highlighted that the impressive rise in the Japanese stock market between April and the end of June — a bull run that saw the benchmark Topix index rise 6.6 per cent over the period, break through the 1,600 point mark for the first time in two years and give rise to a “wealth effect” on consumer sentiment.
The second-quarter GDP figures, said one economist, exhibited the “right kind of growth” for which both the Bank of Japan and the administration of Prime Minister Shinzo Abe have yearned.
Earlier this month, in a move widely interpreted as an effort to arrest plunging approval ratings and divert attention from a number of political scandals, Mr Abe revealed a newly reshuffled cabinet whose priority, he said, would be economic growth.
The newly appointed economy minister, Toshimitsu Motegi, commenting on Monday’s strong GDP figures, said that the strength in private consumption and capital expenditure meant he saw no need at the moment to consider a new economic stimulus package.
“I’m sure Mr Abe will be very happy with this GDP report,” said Nomura economist Masaki Kuwabara, “particularly because other statistics such as industrial production are also strong.”
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