Published: Wed, August 16, 2017
Worldwide | By Sean Reid

Japan's Economy Grows 4% Amid Surprise Rise In Spending

Japan's Economy Grows 4% Amid Surprise Rise In Spending

"The engines of consumer spending and capital expenditure both fired well in the second quarter, and that's why domestic demand was so strong", said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

The Japanese economy expanded at an annualised rate of 4% in the second quarter of 2017, according to official government data.

Japan's economy grew by 1 per cent in the last quarter helping it post its longest run of expansion in more than a decade.

Private consumption, which makes up 60% of output, climbed 0.9% quarter-on-quarter, compared with a 0.4% increase in the January-to-March period, the Cabinet Office said.

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. Nominal GDP growth also registered a high reading of 1.1% quarter-on-quarter versus flat growth in Q1.

The better-than-expected figure - which equates to a storming annualised figure of 4% - came on the back of robust domestic demand and capital spending, which offset a decline in exports.

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The contribution of private inventories to GDP growth was zero.

Japanese consumer spending has been sluggish especially since Abe's government raised the nation's sales tax to 8% in April 2014 from 5% in the first hike in 17 years. And overseas demand - which led the economy's growth until the previous quarter - is confronted with various risk factors, ranging from the ongoing confusion caused by the US administration of President Donald Trump, tensions in Northeast Asia over North Korea's ballistic missile and nuclear weapons programs and concerns over the collapse of bubbles in the Chinese economy. However, a tight labor market is forcing some wage growth, with wage hikes for part-time workers rising 2.3% year-on-year in May, that's up from 0.7% last year.

"Although the headline numbers were good, consumption still lacked strength", Toshimitsu Motegi, minister for economic and fiscal policy minister, said at a press conference. "This in turn should help the further recovery of domestic demand, and decrease Japan's economic dependence on overseas economies and their policies".

He added: "What is needed is supply-side reform".

While growth was faster than expected, it is not expected to nudge the Bank of Japan into dismantling its massive stimulus programme any time soon, as inflation remains stubbornly weak. It was well up from a 0.4 percent expansion in January-March GDP. Business spending advanced 2.4 per cent.

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