Japan’s Growth Disappoints

Figures have become available for growth in the final quarter of 2017 for the Japanese economy which remains the third largest (national) economy in the world behind the USA and China. Analysts had been expecting the annualized growth for Q4 2017 to come in at 0.9%, but the actual figure was almost half of this at just 0.5%. The Q4 figure is sharply down on the Q3 projection which saw annualized growth of 2.2%. However, the Q4 growth is the eighth consecutive quarter where the Japanese economy has expanded, a run not surpassed since the 1980s.

Within the data, there was some room for optimism since consumer spending was stronger than expected in the fourth quarter, coming in at 0.5% above the Q3 reading against an expectation of 0.4% strengthening. Since the dominant term in the Japanese economy is domestic consumption, which accounts for 60% of output, this is a positive development.

Unemployment in Japan stood at 2.8% in December, marginally higher than the November reading of 2.7% but well below the 5% level which some economists regard as “full” employment. To underline this point, the jobs to applicants ratio stood at 1.59 which implies there are fewer candidates than jobs on offer. Currently, 1.86 million Japanese are unemployed with 65.51 million people in work.

Jesper Koll, an economist with WisdomTree asset management, based in Tokyo, told the BBC that: “You’ve got wages improving, and the quality of jobs is improving, so the overall environment for consumption is now a positive one, while over the last 30 years it was a negative one. That’s the key point that’s driving the steady expansion of Japan.”

Japan has long been dogged by deflationary pressures which stymy domestic demand since consumers know that prices will be lower at a future date and so delay making major purchases. However, this trend seems to finally have been vanquished. Currently, inflation stands at 1% (year-on-year for December), a 33-month high. Between 1958 until 2017, average inflation in Japan was 3.02% with a low of -2.5% (October 2009) and a high of 24.9% (February 1974).