The July-September GDP data cast doubts over sustainability of the upturn in the Japanese economy. The fourth quarterly growth in a row was underpinned by public works projects financed by the government’s stimulus package, while exports faltered after growing for two quarters and consumer spending appears to have lost steam.
It was just about a year ago that the “Abenomics” boom in the stock market began — when then Prime Minister Yoshihiko Noda of the Democratic Party of Japan vowed to dissolve the Lower House and hold a general election, in which the Liberal Democratic Party led by Shinzo Abe was deemed certain to seize power and usher in a new set of economic policies. The large fiscal stimulus and the bold monetary easing measures introduced after Abe took office in December have — despite some ups-and-downs — pushed up share prices and lowered the yen’s value so far.
It’s time that private-sector demand took over as the main driver of growth, and Abe needs to flesh out his growth strategy — which has so far failed to impress the market — in ways that support self-sustaining corporate activities and private consumption.
According to the data released Nov. 14 by the Cabinet Office, the nation’s gross domestic product in the July-September period expanded an annualized 1.9 percent from the previous quarter — half the 3.8 percent growth in the April-June period.
Consumer spending, which accounts for 60 percent of the GDP, grew by a mere 0.1 percent, compared with the 0.6 percent increase in the previous quarter. The roughly 70 percent rise in share prices over the past year drove up sales of luxury goods, but the figures may indicate that the effects are falling off.
There are hopes that private consumption would pick up again in coming months as people try to buy luxury products before prices go up with the April 2014 hike in the consumption tax rate. But such a temporary boom could only be followed by a steep fall in demand.
The yen’s fall over the past year has indeed contributed to robust earnings at many large export-oriented manufacturers. But the prospect remains uncertain for Japan’s exports, with further growth in emerging economies seen in doubt in case a scaling-down of the quantitative easing in the United States triggers an exodus of funds from those markets.
Meanwhile, Japan posted nearly ¥5 trillion in trade deficit in the April-September period, with the weak yen adding to the cost of increased imports of fuels for thermal power generation as well as smartphones. The current account surplus for the same period was the second-lowest on record, despite the rise in income surplus thanks to interest gains and dividends from overseas investments. In short, Japan’s power to earn foreign currency appears to be on the wane.
What underpinned the July-September growth was the 6.5 percent growth in public investments, funded by the government’s spending package earlier in the year. But shoring up the economy with more fiscal stimulus will have its limitations, given the nation’s mounting public debt.
The “first and second arrows” of Abenomics — the fiscal and monetary policy actions — may have driven the nation’s growth so far. What’s needed are further steps — be it the prime minister’s “third arrow” growth strategy or efforts by the business community — to put the economy on a self-sustaining cycle in which improved corporate earnings translate into higher wages and increased consumer spending, thereby triggering more business investments.