Those waiting for Japan to show some sustaining force behind its economic growth figures have finally been rewarded.
Last week, the country’s government said Japan’s economy grew in the first quarter of 2015 at its fastest pace since the beginning of last year.
According to a report in the New York Times, the economy expanded at an annualized rate of 2.4% — that was the second consecutive quarter of growth after an abrupt but short-lived downturn in the middle of last year.1
The growth was also above what analyst were expecting, thanks to surprisingly robust spending by households, particularly on homes and home renovations. Economists, on average, were expecting an annualized jump of 1.5% in the first quarter, the Times said.
The expansion could provide a lift for Prime Minister Shinzo Abe, who has struggled to convince the public of the merits of a two-year economic stimulus program known as Abeonmics.
The program, which has involved vast injections of cash into the economy by the central bank, has helped fatten the profits of large corporations and lift the stock market, according to the Times.
Indeed, the QE Japan motif has gained 26.1% in the past 12 months. During that same time, the S&P 500 increased 12.3%.
In the past month, the motif is up 0.9%; the S&P 500 is flat at 0.0%.
Still, the economic data was met with some skepticism. The Times noted that for ordinary Japanese the benefits of wage growth have yet to appear.
A shrinking labor force and a low unemployment rate of 3.4% now makes it easier to find a job in Japan — but not necessarily a good one. The Times reported that nearly 40% of Japanese workers are on part-time or temporary contracts, earning about one-third less than their permanent, salaried peers.
In addition, the Financial Times pointed out that much of the country’s GDP bump was due to a rise in inventories and the fall in global oil prices. After stripping out inventories, the annualized pace of expansion was 0.4%.2
However, that’s not to dismiss the generally positive tone of the first-quarter data. The FT said that private consumption and investment grew 1.4%, suggesting the economy is regaining vitality into the drop into recession.
In addition, the paper said, when Japan runs out of underemployed workers, wages and prices should pick up, helping the Bank of Japan reach its goal of 2% inflation.
Further evidence of a self-sustaining economy could provide a tailwind for Japanese stocks.
1Jonathan Soble, “Japanese Economy Grows at Fastest Pace in a Year, nytimes.com, May 19, 2015, http://www.nytimes.com/2015/05/20/business/international/japanese-economy-grows-at-fastest-pace-in-a-year.html
2Robin Harding, “Japanese GDP data suggests struggle for momentum,” May 20, 2015, ft.com.
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