Japan Economy Expands: Updated Nov. 11, 2023.

 Article Source: https://mainichi.jp/english/articles/20230815/p2g/00m/0bu/009000c

Article:

Japan's economy expands annualized real 6.0% in April-June

TOKYO (Kyodo) -- Japan's economy grew at an annualized real rate of 6.0 percent in the April-June quarter on strong auto exports and a revival in inbound tourism, though an unexpected drop in private consumption cast a pall over the outlook, preliminary government data showed Tuesday.

Real gross domestic product, adjusted for inflation, increased for the third straight quarter, marking the fastest growth since the October-December period in 2020. It increased 1.5 percent from the previous quarter.

Ideas:

It must be remembered that an annualized rate is the projected or estimated rate for 12 months or one year, if the economy stayed the same.  But rarely does the annualized rate actually happen due to many factors in an economy.

But for the April-June quarter, auto exports was the main driver of economic growth with strong demand most likely in the US and domestically too.

Of course the continued growth in tourism and international tourists continue to go to Japan because of the weak yen, which gives them extra purchasing power.

But at the same time, most likely due to inflation private consumption or consumer spending saw a decrease.

Real gross domestic product, not nominal, which is GDP and inflation, saw an increase of 1.5 percent, but the real challenge can it be sustained through the rest of 2023.

Article:

The data beat the average market forecast of a 2.41 percent expansion in a poll by the Japan Center for Economic Research.

GDP is the total value of goods and services produced in a country.

Private consumption dipped 0.5 percent as rising prices for everyday goods hit consumer spending and durable goods sales declined, more than offsetting strong demand for services such as dining out and hotel stays.

Ideas:

While 2.41 percent is/was a good forecast or estimate, the 6.0 percent annualized growth is excellent, but again can it be sustained over 12 months. Unfortunately Japan doesn't usually have that good a growth over a 12 month period, and all countries never reach their annualized projections. 

Private consumption or consumer spending, after a pent-up latent period of spending after the pandemic was downgraded, consumers are probably now worried about inflation and how long it is going to last.

A 0.5 percent drop is not that much but it significant enough to see that consumers are maybe decreasing their spending in the economy because of inflation.

Durable goods usually are not a daily, weekly, month, or even yearly purchases as most households probably only buy durable goods, such as TV's, washing machines etc. once a year and not every year.

Most likely there will continued strong demand for services such as dining out and hotel stays but at the same time, eventually these services might too begin to decrease as extra income is squeezed because of inflation.

Article:

Capital investment grew a mere 0.03 percent, supported by software-related spending, rising for the second straight quarter. The slight increase came despite an earlier survey showing that Japanese companies were bullish regarding investment plans for the current fiscal year to next March.

The easing of supply disruptions has boosted auto exports, while a steady recovery in the number of foreign tourists continued to give the economy a boost as exports jumped 3.2 percent.

Ideas:

An increase of 0.3 percent in capital investments is not that much and with a possible variance factor, it might not have grown at all due to increased energy and raw material costs.

With some companies increasing wages, they might not have had anymore room in their profit margins for capital investments at this time.

Auto exports are always a strong economic driver for the Japanese economy as strong demand in the US and domestically continue to remain strong.

Foreign tourists will continue grow and will eventually get to the 2019 level of 30 million tourists. but not get to that level until 2024.

Article:

Imports, meanwhile, fell 4.3 percent amid decreased energy and COVID vaccine imports.

Nominal GDP grew 2.9 percent from the previous quarter, or 12.0 percent at an annualized rate.

Ideas:

Unfortunately, Japan is resource-poor country and has to import much of what it needs. That means Japan is at the mercy of global prices related to energy and raw materials.

At the same time the variance between the weak Japanese yen and strong US dollar makes imports even more expensive in Japan. 

What Japan needs to do is have some kind of trade agreement with the US that gives Japan better trade terms to that they can manage the costs of imports so that they aren't vulnerable to the weak yen and global prices.

What they need, which they do have, is better trade agreements, but trade agreements take a long time to finalize.

Have a nice day and be safe!