Japan Jan.- March Economic Contraction: Updated June 11, 2024.

 

Japan Jan.-March economic contraction revised to annualized real 1.8%

Article Source:  https://mainichi.jp/english/articles/20240610/p2g/00m/0bu/009000c

Ideas:

While a economic contraction is not good, a 1.8 percent decrease is not that bad, but at the time, the Japanese economy seems, still, to be stuck in a deflation or stagnation situation.

Of course 1.8 should be better but for the Japanese economy it seems it one quarter of positive growth and then one or two quarter of negative growth. The Japanese economy can't make up its mind what it wants to do.

Domestic demand, in the Japanese economy is never where it should be for many reasons, and of course inflation and the weak Japanese yen might be the main reasons.

It seems the Toyota situation has now expanded to other car companies besides just the Toyota group companies.

Of course there might have always been this idea that Toyota was the/a model Japanese company, but now we see that its not like that at all, as the safety rigging situation has exposed Toyota and many other Japanese car companies too.

An annualized estimation is if an economy stay exactly the same, which of course an economy never stays the same as its always increasing and decreasing in many different sectors at the same time.

The average Japanese citizen of course probably didn't even feel or know the Japanese economy decreased 0.5 percent or even 0.45 percent, as they are just focused on their daily lives and not that interested in what some economists might be saying.

There are times, the media and some economists, and the financial markets get too caught up in the quarterly results instead of focusing on the big picture or even one year results.

Of course this the result of the financial markets placing too much emphasis on quarterly results forcing companies to do the same thing, and abandoning their 5 year plans.

 Capital investment might be in the margin of error as 0.8 percent or even 0.4 percent is not that much of a decrease, and again, whomever, focuses too much on trivial matters, such as quarterly results and not focusing on yearly results.

And the same with private consumption or consumer spending as a 0.7 decrease, again, might be in the margin of error, but instead of focusing on quarterly results look at yearly results to see what is really happening.

At the same time, most likely private consumption or consumer spending is not going to be much different for a quarter or a year as consumer spending in the Japanese economy just never reaches its fullest potential due to, these day, inflation and the weak yen.

And yes, as noticed consumer spending or private consumption has now declined for four consecutive quarters or for over a year, again, due to the weak yen and continued inflation.

GDP is made up of consumer spending, business investment, government spending, and net exports, meaning exports minus imports.

The Japanese government, or whomever,  always likes to use the phrase "recovering moderately," as a way to not scare the financial markets. 

So just what might be the weakness in the Japanese economy? Is it consumer spending, most likely, is it capital spending, most likely, is it government spending, probably not, and is it exports minus imports? 

If we consider exports alone, exports seem to be fairly strong, while imports is different story with a weak Japanese yen, its causes import prices to increase.

Consumer sentiment is always a major variable in any economy. If consumers feel good they spend a lot if they don't feel good they don't spend much.

Japanese companies might be willing to invest but most likely labor shortages are keeping many companies from investing at this time.

If there labor shortages are a challenge for Japanese companies, just what related to labor shortages is the main challenge? Is it finding the needed workers to run the equipment for example, or is it just an overall worker shortage?

There always seems to be uncertainty in the Japanese economy, these day, so it nothing really new, but, to be fair, every economy has its share of uncertainty about the future.

But the Toyota group situation is a real challenge and its now affecting many Japanese car companies, and it could turn into a major challenge for Japanese car companies.

Or it might not, as maybe, globally, it might not have a big of an affect on global sales in the future.

The tax cut will help, but will it be enough, but of course something is better than nothing, as inflation continues on in Japan.

And yes, it might take until August for the wage increases to have a full affect and then it might not as maybe inflation will continue.

And remember, not all Japanese workers will get a good wage increases and some will get smaller wage increases and some will get larger wage increases.

So private consumption or consumer spending, for the time being, is not going to be where it should be, and, again, even when the wage increases start to take a real affect, consumer spending still might not be that great.

So there, maybe globally, we begin to see the affects of the Toyota auto scandal, and again, its not just Toyota, as many Japanese car companies seems to be involved too.

The 5.1 percent decrease in exports, might not be related to sales, but Japanese car companies voluntarily suspending production of some Japanese car models.

Foreign tourism in Japan, might be the only real bright spot in the Japanese economy at this time, as the weak Japanese yen gives more purchasing power to foreign tourists.

At the same time,  some Japanese areas, or popular tourists areas, might be reaching a breaking point, as some local Japanese are getting upset with the behavior of foreign tourists and how they are behaving in Japan.

It would not surprise me, if the Bank of Japan, intentionally increased the Japanese key rate, to move it closer to the US key rate, which would make the Japanese yen, less weak, which eventually might dissuade some foreign tourists to go to Japan as the Japanese yen now is not as weak as before.

Public investment, or government spending is always a key player in economic growth and or used a lot by the Japanese government when consumer spending and business investment is not where they should be.

But these days the Japanese government is somewhat weary, besides the tax cut and other household subsidies, to use public investments too much due to the Japanese government debt to GDP ratio, which is now estimated to the highest in the world.

During or after the second quarter, and after the wage increases maybe begin have some affect then maybe, just maybe the Japanese economy has move out of its stagnation phase and or deflation phase. But that is a lot of wishful thinking at this time.

Have a nice day and be safe!