The annualized 1.4 percent decline of Japan’s gross domestic product in the October-December period is yet another indicator of the fragility of the economy. The government says the economy remains on a moderate recovery path, citing strong corporate earnings and favorable employment figures. But the seesawing of GDP data illustrates the lack of a self-sustaining engine to drive the economy just as uncertainties over global growth intensify. Developments since the start of the year are also not encouraging, clouding prospects of a strong rebound this quarter.
The GDP’s fall in the last quarter, following a revised 1.3 percent growth in the July-September period and a 0.5 percent contraction in the preceding three months, was blamed on a 0.8 percent decline in personal consumption that was chiefly attributed to unseasonably warm weather. But the underlying weakness in consumer spending, which accounts for 60 percent of the nation’s GDP, has continued since the April 2014 consumption tax hike. The annualized value of personal consumption in the October-December period was still below the level of the April-June quarter of 2014.
Household spending in December fell 4.4 percent from a year ago for the fourth monthly decline in a row. Average worker wages in 2015 fell 0.9 percent on a net basis from 2014, the fourth annual decline in a row, as prices rose faster than wage hikes — hardly a condition that encourages households to spend more. What the Abe administration calls a virtuous economic cycle — in which increased corporate profits boost consumer spending through higher wages and in turn trigger more business investments — seemingly has yet to emerge.
The 1.4 percent decline in imports reflects sluggish domestic demand and falling oil prices, while the 0.9 percent fall in exports was attributed to lower demand in the United States and in emerging markets led by China. Global stock market turbulence since January is an indication of growing uncertainties over the course of the U.S. and Chinese economies — the world’s two largest. China, Japan’s largest trading partner, reported Monday that its January exports declined 11.2 percent and imports plunged 18.8 percent from a year ago, with the nation’s total trade falling for the 11th month in a row.
China’s slowdown, coupled with the ongoing plunge in oil prices, has led some major Japanese firms to revise their profit forecasts downward. The combined net profit of companies listed on the first section of the Tokyo Stock Exchange (excluding financial, power and gas firms) in the October-December period fell nearly 15 percent from the corresponding months of 2014, according to a tally by SMBC Nikko Securities.
Events since January also seem hardly promising. Jitters over the stock market turbulence have led to buying of the yen as a safer investment, which pushed it up sharply against other currencies and in turn stoked more market fears over a deterioration in corporate earnings that had been buttressed by the yen’s weakness under Prime Minister Shinzo Abe’s trademark economic policies. Growing uncertainties over the economy may dash hopes for robust wage hikes in spring that might encourage more consumer spending.
Bank of Japan Gov. Haruhiko Kuroda, whose monetary stimulus operation has been a key component of Abenomics over the last three years, says the central bank is ready to take more action to prevent turbulence in the stock and currency markets from derailing the administration’s bid to bust deflation. But the impact of his latest surprise “bazooka” in the form of a negative interest rate policy, which he announced at the end of last month, was seemingly offset by the complex set of concerns over the global economy even before the policy officially kicked in this week. Share prices in Tokyo, where the Nikkei index rallied by more than 1,000 points on the day the latest GDP data was announced, remain at the mercy of wild fluctuations in overseas markets and currency exchange rates.
The fact that attention continues to focus on the BOJ’s monetary stimulus — supposed to be a short-term shot in the arm to bust deflation — nearly three years into the policy may be proof that the other components of Abenomics — in particular the much-touted growth strategy through regulatory reforms — are falling short. At the same time, Japan alone will not be able to adequately respond to the growing uncertainty over the global economy. Along with reviewing what has been lacking in its domestic policies, the government needs to work on policy coordination with other countries to address the global market turbulence, including at the G-20 meeting of finance ministers and central bankers in Shanghai next week.