Japan's GDP revised down to 2.9% fall in July-Sept., inflation bites
TOKYO (Kyodo) -- Japan's economy shrank an annualized real 2.9 percent in July-September, sharper than the previously reported 2.1 percent, hurt by weaker-than-expected private consumption and slowing growth of exports, government data showed Friday.
Real gross domestic product, adjusted for inflation, declined 0.7 percent from the previous quarter, against its earlier reading of a 0.5 percent contraction.
The world's third-largest economy marked its first negative growth in four quarters. GDP is the total value of goods and services produced in a country.
Ideas:
It seems that the idea that the Japanese economy shrank an annualized 2.9 percent appears to be somewhat misleading. Maybe it better to say the Japanese economy only grew 2.9 percent annualized which means if all conditions were exactly the same GPD growth would be 2.9 percent for the year.
A decline from the previous quarter of 0.7 percent is not that much but if annualized out for a year GDP growth would be 2.8 percent.
Weak private consumption, or consumer spending, is always a challenge as Japan is more of a savers society and not a spender society like the US.
At the same time, of course, add in inflation and maybe some or many consumers are spending less than normal.
Article:
Private consumption, which makes up over half of GDP, dropped 0.2 percent, rather than a 0.04 percent fall, as rising prices of everyday goods dented household sentiment.
Capital investment, another key gauge of domestic demand, was revised up to a 0.4 percent decrease from its earlier reading of a 0.6 percent drop.
"While the underlying recovery trend is not yet over, both private consumption and capital spending in the GDP data were weak. Caution is warranted," said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities.
Ideas:
A decrease of 0.2 percent is not that much as maybe its the range of error related to statistics.
But no doubt the increase in prices of everyday good has hurt consumer sentiment, which is consumer feeling about the economy and prices.
Economic data, statistics are always being reviewed and revised as new information is made available. Many times, in all countries data examiners always revise and change the economic data.
We need to distinguish weak from deceasing, as data that might be weak is still economic growth. But yes, caution is needed as the Japanese economy is never on solid ground or solid economic growth.
Article:
"For households, inflation is working as a negative because wage growth is more than offset by rising prices. It will take some time for (inflation-adjusted) wage growth to turn positive," Maruyama said
Weakening domestic demand poses a challenge to the government when it is seeking to ease the pain on consumers due to the double whammy of pricier everyday goods and falling wages.
The slowdown in the economy gives the Bank of Japan reason to persist with ultralow rates, but with headline inflation sitting above the central bank's long-term target of 2 percent for more than a year it is becoming increasingly difficult for the public to accept the view that the inflation goal has not yet been achieved stably through wage growth.
Ideas:
The idea for wage increases is to offset inflation but it says the wage increases in April of 2023 was not enough as inflation was higher than the wage increases.
Actually 70 percent of the Japanese workforce doesn't work for large Japanese companies, which gave most of the wage increases in 2023.
The Bank of Japan, in the past, as suggested the Japanese economy is not strong enough for EU or US style inflation strategies such as increasing the key rate.
If the Bank of Japan were to change its current policy and increase the key rate, there might be more economic stress related to the increased key rate, and some side affects which might affect some companies and consumers.
Its like taking medicine which is good for you, but there might be some unwanted did effects related to the medicine.
Article;
Exports grew 0.4 percent, slightly slower than 0.5 percent in the preliminary data, while imports increased 0.8 percent, a downward revision from 1.0 percent.
Nominal GDP was slightly revised upward to an annualized 0.05 percent fall from a 0.2 percent decline.
Robust exports had supported the economy in previous quarters despite aggressive rate hikes in major economies calling into question the sustainability of strong export growth. China's slowdown has become another source of concern.
While BOJ Governor Kazuo Ueda has underscored the need to maintain monetary easing, his remarks on Thursday that it will become all the more "challenging" from the end of the year into 2024 fueled market speculation that an exit will come sooner than expected. The yen subsequently surged relative to the U.S. dollar.
Ideas:
Exports in Japan, especially Japanese auto exports, are a major economic driver, meaning it has the potential to increase economic growth in Japan.
Nominal GDP is just GDP and inflation together while real GDP is GDP without inflation. A slight increase means that maybe inflation had increased slightly.
Rate hikes or increases in the US has not happened for a few quarters, as the US economy is now stronger and the US Federal Reserve, the US central bank, has not seen the need to increase rates and the US economy appears strong now.
China, of course is a different situation. Ever since the pandemic, and after, the Chinese economy has been in limbo somewhat and not growing like it did before.
Of course Japanese companies that do business in China and with China, are not happy with the situation in China, which doesn't seem to change anytime soon.
The Bank of Japan since the end of the pandemic, as been under pressure to change its current low policy strategy, but other bond rates, not much as changed.
At the same time, any quick change by the Bank of Japan might disrupt the financial markets and or cause undo stress and maybe society and businesses need time to adjust to any real changes made by the Bank of Japan.
Article:
SMBC's Maruyama expects the economy to rebound in the October-December quarter but the BOJ will take a wait-and-see stance ahead of annual wage negotiations between labor unions and management next spring.
Prime Minister Fumio Kishida has pointed to the risk of Japan slipping back into deflation, or prices continuously falling, without sustained wage growth.
Later this month, the government will draw up a budget plan for the next fiscal year from April, on top of the recently-enacted 13.20 trillion yen ($92 billion) extra budget for fiscal 2023 to implement inflation-relief steps, such as subsidies to lower fuel costs and payouts of 70,000 yen to low-income households.
Ideas:
The Japanese economy might rebound in the October-December quarter, but normally, the Japanese economy doesn't grow that much.
Once again, the Bank of Japan is hooping that companies will increase wages enough for them to justify and change in policy.
Japan is always at risk of slipping back into deflation, which is decreases in overall prices for the economy. But there are positives and negatives deflation. Such as lower prices for consumers, but also negatives such as lower wage increases too.
Budget plans are good but they need to reach society or Japanese households without a lot of unneeded paperwork. If the subsidies and payouts are too hard to get, many households are going to be under more stress related to inflation.
Have a nice day and be safe!
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