Japan’s economy expands more than expected on strong investment

Shoppers walk through the rain in an Osaka shopping district in western Japan October 31, 2017. — Reuters pic
Shoppers walk through the rain in an Osaka shopping district in western Japan October 31, 2017. — Reuters pic

TOKYO, Dec 8 — Japan’s economy expanded a faster-than-expected 2.5 per cent in the third quarter, as a nearly year-long recovery in exports helped fuel business investment.

The Japanese economy has grown for seven straight quarters, which now registers as its longest expansion since the mid-1990s, following government revisions to previous data released today. A slew of key October indicators suggest that while growth may slow a bit, the GDP expansion will continue in the fourth quarter.

The upward revision to third-quarter growth from a preliminary reading of 1.5 per cent was driven by stronger readings of business investment and inventories.

While export growth is driving corporate profits and business investment, wage gains and consumer spending remain lacklustre. Spending by households on durable goods and services fell during the third quarter from the April-June period.

Overall pay rose a slower-than-expected 0.6 per cent in October from a year earlier, separate data released today showed.

Highlights of the GDP report

Gross domestic product expanded an annualised 2.5 per cent (estimate +1.5 per cent) in the third quarter. That compares with a preliminary reading of 1.4 per cent.

Business spending rose 1.1 per cent (estimate +0.4 per cent) from the previous quarter. Preliminary reading was +0.2 per cent.

Private consumption declined 0.5 per cent, unchanged from the preliminary reading. Net exports, or shipments less imports, contributed 0.5 percentage point to growth. This was unchanged from the preliminary reading.

“The solid investment shows Japan’s economy is making a step forward to a self-sustained recovery,” Hidenobu Tokuda, a senior economist at Mizuho Research Institute. “Record corporate profits and demand for IT-related goods and labor-saving investment are helping boost business fixed investment.”

Consumer spending isn’t so strong due to tepid wage growth overall, Tokuda said, adding that there’s a risk that the recent rise in oil prices may reduce households’ purchasing power.

Key message

The key message from today’s data is that Japan’s economy is humming along at a rate well above its potential, which is positive for the Bank of Japan’s reflation efforts, Yuki Masujima of Bloomberg Economics wrote.

But a slightly weaker signal from the GDP deflator from the previous quarter indicates it’s going to be hard for the central bank to push inflation much higher. The rapid increase in inventories during the third quarter could unwind in the fourth, weighing on growth.

Other details

Measured quarter on quarter, GDP expanded 0.6 per cent (preliminary reading was +0.3 per cent). A separate data release showed Japan’s current-account surplus was 2.18 trillion yen (RM79 billion) in October. — Bloomberg

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