Solid company investments have kept driving the recent Japanese economic
expansion despite slightly weaker than forecast growth figures coming
from a government report released last week.
The current 0.9 percent annualized growth has also been hampered by a
significant drop in public expenditure, a knock on effect of recent
reforms towards a more minimal government. The main factor, however, has
been a decline in one of Japan’s largest trading partner’s economy,
with the United States’ dwindling demand for imports chipping away at
Japan’s previously booming export business.
Japan has been encouraged by six consecutive quarters of economic
expansion with the latest figures showing a 0.3 percent GDP gain on the
previous quarter, according to data. An annualized 1 percent gain is
forecast if the current trend continues.
One respected Japanese economist, Ryutaro Kono, chief of currency
markets at BNP Paribas, believes the current upswing is not sustainable
and the next few months will likely see a decline in expansion.
“I don’t think we can keep this extraordinary run going into the next
quarter, however strong consumer expenditure and some significant
private investment will prevent the economy sliding back into
contraction,” he said.
After nearly ten years in the wilderness, Japan’s economy has shown real
signs of a recovery in the last few years with a massive 3.3 percent
growth figure in 2005.
Surprisingly, it has been domestic spending that has spurred growth in
the past few months rather than exports, a factor the Japanese have
historically heavily relied on.
Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management
attempted to make sense of the data in a blog article on Friday, “The
recent reports show us that in the larger scheme of things the recovery
is on-going. The main factors supporting growth at this stage seem to be
an upsurge in corporate and private spending within Japan. These
factors are propping up very disappointing export performance, and offer
another dimension to an economy that has previously placed a
disproportionate amount of importance on its foreign trade.”
As exports to the United States had waned, due to their own flagging economy, private sector investment has surged within Japan.
Consumer spending held up well amid plummeting public investment figures
due to new budget policies at national and regional government levels.
It is evident that the average Japanese is unfazed by the new reforms as
they continue to spend on holidays, dining and electronic products.
