Japan Growth Edging Up

EghtesadOnline: Japan’s economy likely expanded for a third straight quarter in July-September, a Reuters poll showed on Friday, but weak private consumption and lackluster company capital spending suggest growth will remain fragile.

News ID: ۷۷۰۹۹۰

05 November 2016

The world’s third-largest economy is expected to have grown at an annualized rate of 0.9% in the third quarter, the poll of 22 economists found, following a 0.7% expansion in the second quarter.

That would translate into a muted 0.2% rise for the quarter, the same pace as in the second quarter.

“The economy is escaping from a lull but we cannot say it returned to a track of sustainable growth because private spending and capital expenditure remained low,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“The economy is expected to pick up moderately from October-December but downside risks continue to stay.”

A recovery in automobile production which may have contributed to the economy in July to September has likely waned, though government stimulus measures are expected to continue to provide some support for activity, he said.

Private consumption, which accounts for roughly 60% of gross domestic product, likely stalled in the last quarter after improving in the previous two quarters, economists predicted.

Capital spending was seen up a marginal 0.1%, but still rising for the first time in three quarters.

The cabinet office will announce the GDP data on Nov. 14.

Core Orders

The poll also found core machinery orders, a leading indicator of capital spending, likely slipped 0.8% in September from the previous month, down for the second straight month.

The expected fall would follow a 2.2% decline in August. The highly volatile data series is regarded as an indicator of capital spending in the next six to nine months.

Core orders, which exclude those for ships and electrical equipment, likely rose 3.5% percent in September from a year earlier after a 11.6% jump in August.

“External demand is weak due to an impact from a strong yen, which could prompt manufacturers to become cautious about capital expenditure,” said an analyst at SMBC Nikko Securities at the survey.

The cabinet office will release machinery orders on Nov. 10.

On Wednesday, the finance ministry will release the current account balance for September, which is expected to show a surplus of 1.9602 trillion yen ($19.02 billion).

The Bank of Japan’s corporate goods price index on Friday, which measures the price companies charge each other for goods and services, was seen down 2.7% in the year to October, reports Financial Tribune.

Reflating the Economy

Here’s a broad picture of how households have fared over the past three-plus years of Prime Minister Shinzo Abe’s economic program, which was meant to reflate Japan’s economy, leaning heavily on the Bank of Japan’s extraordinary asset-buying, Bloomberg reported.

The stock market soared after the the Bank of Japan’s bond-buying program helped weaken the yen, providing a boost to Japanese exporters. The value of households’ equity holdings rose in the process, but renewed strength in the currency this year has stalled the trend.

There is growing pessimism about the prospects for a sustainable recovery in Japan, which has weighed on stocks.

One of the knocks against Abenomics has been that it mostly benefited big businesses and more affluent households—fewer than a third of Japanese households own stocks.

While share prices are higher, wages have barely moved and household income has stalled. This has frustrated policy makers who want to see rising pay provide workers with more purchasing power.

One-person households, which now account for more than 30% of the total, haven’t fared well. About 48% had no financial assets in 2015, the highest level since 2007 and up from 39% in 2014, according to a BoJ survey.

With incomes flat and interest rates at rock-bottom levels, it’s no surprise that borrowing has increased. The value of outstanding mortgage loans from private banks has increased almost 8% between 2012 and 2016.