The land of the rising sun sees rising GDP too

Today starts with good news from the land of the rising sun or Nihon. I do not mean the sporting sphere although there was success as a bronze medal in the men’s 4 by 100m relay was followed by silver and bronze in the men’s 50 km walk at the world athletics championships. There was also a near miss as Hideki Matsuyama faded at the US PGA  and did not become the first Japanese man to win a golf major. But the major good news came from the Cabinet Office as this from The Mainichi tells us.

Japan’s economy grew an annualized real 4.0 percent in the April-June period for a sixth straight quarter of expansion, marking the longest growth run since 2006, as private consumption and corporate spending showed signs of vigor, government data showed Monday.

If we convert to the terms we use there was 1% economic growth from the previous quarter which was quite a surge. Actually that is way beyond what the Bank of Japan thinks is the potential growth rate for Japan but let us park that for now and move on to the detail.  Reuters points out that consumption was strong.

Private consumption, which accounts for about two-thirds of GDP, rose 0.9 percent from the previous quarter, more than the median estimate of 0.5 percent growth.

That marked the fastest expansion in more than three years as shoppers splashed out on durable goods, an encouraging sign that consumer spending is no longer the weak spot in Japan’s economic outlook.

In fact so was investment.

Capital expenditure jumped by 2.4 percent in April-June from the previous quarter, versus the median estimate for a 1.2 percent increase. That was the fastest growth in business investment since January-March 2014.

The combination is interesting as this is something that Japan has wanted for a long time as its “lost decade(s)” of economic malaise have seen domestic demand and consumption in particular struggle. Some countries would be especially troubled by the trade figures below but of course Japan has seen many years of surpluses as this from the Nikkei Asian Review indicates.

 Japan’s current account surplus expanded in the January-June period to the highest level since 2007 as earnings from foreign investments moved further into the black, despite rising energy prices pushing up the overall value of the country’s imports, government data showed Tuesday.


Thus it is likely to see this as another welcome sign of strong domestic demand.

External demand subtracted 0.3 percentage point from GDP growth in April-June in part due to an increase in imports.

Those who look at the world economy will be pleased to see a “surplus” economy importing more.

Where does this leave Abenomics?

There are various ways of looking at this and the Japanese owned Financial Times leads the cheers.

‘Not a fluke’: Japan on course to record best GDP growth streak since 2000

“Not a fluke” is an odd thing to write because if you look at the GDP chart they provide we see several spikes like this one which imply it may well be er not only a fluke but another one. They are less keen to credit another form of Abenomics which is the way that the latest stimulus programme impacted with a 5.1% (21.9% annualised) rise in public investment causing a 0.2% rise in GDP on its own. Perhaps this is because of the dichotomy in this part of Abenomics where on the one hand fiscal expansionism is proclaimed and on the other so is a lower deficit! Also there are memories of past stimulus projects where pork barrel politics led to both bridges and roads to nowhere.

Actually the FT does then give us a bit of perspective.


Japan’s economy, as measured by real GDP, is now 7 per cent larger than when prime minister Shinzo Abe took office in late 2012, notes Emily Nicol at Daiwa Capital Markets.

That is a long way short of the original promises which is one of the reasons why the Japanese government page on the subject introduces Abenomics 2.0.  If we look at the longer-term chart below is there a clear change.

On such a basis one might think it was the US or UK that had seen Abenomics as opposed to Japan. Of course the figures are muddied by the recession created by the consumption tax rise in 2014 but the performance otherwise even with this quarter’s boost is far from relatively stellar.

Bank of Japan

It will of course be pleased to see the economic news although it also provides plenty of food for thought as details like this provide backing for my analysis that ~0% inflation is far from the demon it is presented as and can provide economic benefits. From Bloomberg.

The GDP deflator, a broad measure of price changes, fell 0.4 percent from a year earlier.

Board Member Funo confirmed this in a speech earlier this month.

The rate of increase for all items less fresh food and energy had remained on a decelerating trend, following the peak of 1.2 percent in winter 2015; recently, the rate of change has been at around 0 percent.

He of course followed this with the usual rhetoric.

The rate will likely reach around 2 percent in around fiscal 2019.

It is always just around the corner in not entirely dissimilar fashion to a fiscal surplus in the UK. As to the official view it is going rather well apparently.

Taking this into consideration, the Bank decided to adopt a commitment that allows inflation to overshoot the price stability target so as to strengthen the forward-looking mechanism in the formation of inflation expectations, enhance the credibility of achieving the price stability target among the public, and raise inflation expectations in a more forceful manner.

Make of that what you will. The reality is that the QQE programme did weaken the Yen but that effect wore off and inflation is now ~0% as is wage growth.


This growth figures are good news and let me add something that appears to have been missed in the reports I have read. Back to Board Member Funo.

In an economy with a declining population.

Thus the per capita or per person GDP numbers are likely to be even better than the headline. I would say that this would benefit the ordinary Japanese worker and consumer but we know that real wage growth has dipped into negative territory again. This provides a problem for Prime Minister Abe as when he came to power the criticisms were based around his past history of being part of the Japanese establishment. What we see nearly 5 years down the road is a lack of real wage growth combined with good times for Japanese corporate profitability. As to the reform programme there is not a lot to be seen and maybe this is why Board Member Funo was so downbeat.

In an economy with a declining population, as is the case in Japan, demand is expected to decrease for many goods and services; therefore, it will be important to adequately adjust supply capacity; that is, employees and production capacity to meet such a decreasing trend.

I do not know about you but trying to raise prices when you expect both demand and supply to fall seems extremely reckless to me.

As to the GDP numbers themselves we need a cautionary note as Japan has had particular problems with them and they are revised more and by larger amounts than elsewhere.



6 thoughts on “The land of the rising sun sees rising GDP too

  1. Great blog as always, Shaun. I noticed that the Japanresidential property price index rose by 2.9% in April, not much in terms of what the UK has seen in recent years, but more impressive when you consider the CPI inflation rate for April was just 0.4%. Condos showed a 5.0% increase while single-detached homes fell in price. I think the true inflation rate in Japan is understated somewhat since the Japanese CPI uses imputed rents to measure homeownership costs:
    Japan did much better than Canada in the IAAF world championships in London; we failed to win a medal. An Ottawa Lions athlete, Melissa Bishop, won silver in the 800 metres two years ago, but only finished in fifth place this time. Just as a race, though, it must have been one of the more thrilling finals at the London games, with the American girl, Ajee Wilson, who ended up with the bronze medal, taking it out hard over the first lap; a refreshing change from so many “tactical” (i.e. slow) finals. Anyway, well done to you Londoners for hosting the games.

    • Not a Londoner Andrew but I thought it was a cracking championships too.So much better than the Olympics and all it’s prizes for 20m shooting,50m shooting whilst standing etc.

      Shame to see Bolt bow out.What a legend.

      • Sorry, Dutch, I guess I should have said that you Britishers put on a wonderful show as it was a national effort. I agree, It was sad to see Usain Bolt end his career as he did in the relay, when he is the greatest sprinter ever. However, the London games confirmed the South African, Wayde van Niekerk, as a huge talent, taking a gold in the 400 and a silver in the 200. The South Africans in general had a great games.

    • Hi Andrew and thank you

      In Japanese terms ( ~ 0% inflation and real wage growth) 2.9% is a fair amount. As to the athletics of which I am a big fan I did not know about Canada, I know that earlier in the week some over here were taking solace in Australia doing even worse than we were. However both the UK and Oz rallied over the weekend.

      Returning to imputed rents it amuses me to note that they invariably subtract from GDP in Japan….

  2. Shaun,

    Sorry to rain on the parade but the Japanese govt own something like 40% of JGB’s………….I’m writing from memory but |’m sure you’ll have a more accurate figure.

    Also,haven’t they varied their QE programme to buy all sorts of QE duds as well?

    My final point I to ask whether celebrating GDP per capita increases in te light of their demographic problems is like being the last one alive at a wake?

    • Hi Dutch

      I am no fan of Abenomics as I know you are aware but also I think it is important to cover both sides of the coin, better days as well as poorer. However I am a fan of GDP per capita as looking at it like that they are not doing so badly and another perspective is given on the lost decades. Maybe more of a push and some genuine reform would keep that going without the deficit/debt spiral that as you say has ended up requiring the Bank of Japan to buy,buy,buy…

      I enjoyed the athletics as well topped off by last night someone who trains at Battersea Park ( Matthew Hudson Smith) winning a bronze in the 4 by 100m relay 🙂 . It is an extraordinary style of training where much of the resistance is electronic provided by a rather large black box.

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