Japan’s GDP was up 4%, beating expectations.
It’s been primarily driven by Abenomics, the economic policies of Japanese Prime Minister Shinzo Abe. By weakening the yen, Japanese exports became highly competitive in global markets. However, these policies have done less for the domestic economy.
This is the 7th month straight where we’ve seen a sustained rise in consumer spending, albeit small. And corporate investment, particularly in automation, is up too. It all suggests that Japanese consumers and businesses are feeling optimistic about the country’s economic future.
Government spending, another arrow of Abenomics, has also shot up by 22%. This is beginning to trickle down into the economy, aiding growth.
However, there are problems in the labour market.
There’s a shortage of workers.
And as Japan’s population continues to rapidly age, pressure will increase on its social care budget. Added to this is wage stagnation, even though Japanese companies have big cash reserves. This makes it difficult for Japan to tackle its historic deflation problem.
Deflation is a big concern.
Without progress towards inflation, consumer demand will remain weak which has knock on effects for monetary policy: the Bank of Japan cannot raise interest rates for fear of making things worse.
The Trump card
Japan’s trade surplus with America is only getting bigger.
Trump is scrambling to reverse America’s trade deficits under his “America First” policy (think NAFTA). Going forward, this may create uncertainties for Japan’s export-led recovery.