Expansionary Abenomics is Lifting GDP Growth


Recent data updates are showing that the Japanese economy is slowly recovering. In the first three months of 2013, the GDP expanded 0.9 percent from the previous quarter and 0.2 percent from the same period in 2012 driven by the improvement in public consumption and exports. More importantly, expansionary policy mix of monetary and fiscal stimulus initiated at the beginning of 2013 is likely to boost the growth even more in the next few months.

Higher consumer confidence accredited to new policy measures has been boosting personal consumption. Although earnings have not risen, household expenditures accelerated by 5.2 percent yoy in March after increasing 0.8 percent in February. In addition, in Q1 of 2013, exports grew 3.8 percent from the previous quarter even given the weak global demand. Yet, concerns still remain. So far, initiated in April the new program of quantitative monetary easing focusing on achieving the 2 percent inflation target in two years by doubling the monetary base has led to the yen depreciation. And although the stock market rallied and the profits of big corporations increased, the deflationary price trend persists. In addition, the labor market has improved gradually and the unemployment rate fell to 4.1 percent in March from 4.3 percent in February. However, the government decided to postpone significant reforms in the labor market. Japan’s life time employment system and the high protection of permanent workers limits the flexibility and potential of young workers. Also, in the last few months, there has been no visible improvement in wages. Without rising salaries it is almost impossible to keep consumption growth and expect the prices to go up. On the negative side, in spite of stock rally and exports rise, business confidence is still very low. As such, investment on new plant and equipment fell for the fifth straight quarter in the three months to March.


After two quarters of contraction, the GDP expanded 0.3 percent in Q4 of 2012 and 0.9 percent in Q1 of 2013. In the first four months of 2013, the consumer confidence has been at the highest level since 2007.
 
The Tankan index of sentiment at large manufacturers improved slightly in the first quarter. Yet, industrial production recovery still seems to be out of reach as it declined 6.7 percent yoy in March.
     

In April, exports rose 3.8 percent yoy to 5.777 trillion yen, after growing 1.1 percent in the previous month. Japan's trade deficit almost doubled yoy as a weaker yen inflated import costs.
 
In April, the Bank of Japan announced further measures to fight systemic deflationary pressures. Still, the overall price trend remained deflationary.

 

 


Anna Fedec, anna@tradingeconomics.com
5/22/2013 11:21:40 AM