GDP confirms Japan’s economy is back on track


by: Robin Harding in Tokyo

Japan’s economy grew at an annualised pace of 1 per cent in the final quarter of 2016 as yen weakness spurred a pick-up in exports and business investment. Sample the FT’s top stories for a week You select the topic, we deliver the news. Select topic Enter email address Invalid email By signing up you confirm that you have read and agree to the terms and conditions, cookie policy and privacy policy.

The figure, which was broadly in line with analysts’ expectations for a 1.1 per cent rise, confirms Japan’s economy is back on track after a wobble last summer. Robust growth will reinforce the political popularity of Prime Minister Shinzo Abe, and suggests the Bank of Japan is unlikely to add any more monetary stimulus. For calendar 2016, the economy grew by 1 per cent, following growth of 1.2 per cent in 2015.

That is well above Japan’s long-run growth potential of about 0.5 per cent, suggesting the “Abenomics” stimulus is working to boost demand. Net exports contributed a full percentage point to annualised growth during a quarter when Donald Trump’s election as US president caused the yen to weaken sharply against the dollar, from its previous level around ¥100-¥105 to a new range of ¥110-¥115. Strong business investment contributed 0.6 percentage point to growth and government spending another 0.3 percentage point.

That offset a decline in inventories that knocked 0.5 percentage point off growth and a fall in public investment worth 0.3 percentage points. The breakdown of gross domestic product suggests the economy was even stronger than it first appeared, since inventory adjustments are one-off and do not reflect the underlying pace of growth.

But there was one significant area of weakness: consumption was stagnant, suggesting Japan’s economy still lacks internal momentum. Early signs from this year’s “shunto” spring wage round suggest that pay rises will be similar to last year.

In the absence of higher wages to fuel consumption, spending may remain weak, making 2017 another year of modest progress for Japan’s economy. Copyright The Financial Times Limited 2017. All rights reserved.

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