Japan July-Sept. GDP revised down, first drop in 6 qtrs on weak investment
Ideas
The Japanese economy hasn't been that great for a very long time and rarely grows more than 1 percent if even that. And then with the US tariff situation in play it's not a surprise that the economy decreased during the July-Sept. period.
Companies in Japan need to see something positive before they are going to investment or spend their money and again, with tariff situation, they are not going to invest or spend much until see something good happening in the future.
This easily could be written off as just a business cycle situation where there are good periods and there are not so good periods for an economy. Yes, this might be a not so good period but, while the Japanese economy might have grown somewhat over the previous six quarters, that doesn't mean one not so good quarter is going to cause everything to look like gloom and doom. Things can change quickly as the Japanese economy is a very resilient economy and always finds a way to find some growth over time.
The tariff situation is an opportunity to show how innovative and creative Japanese businesses can be and find new strategies to overcome the situation. But unfortunately the Japanese business leaders of today are not the leaders of old that grew some of the most innovative companies in the world as the time, The group of business leaders in Japan are under extreme constraints that the early business leaders never faced.
Yes, the weak Japanese yen is causing import prices to be higher than normal and import companies and wholesalers pass-on the higher import prices to the next in the supply chain including the final retail customer.
Private spending or consumer spending and business investments are other keys to GDP growth and if they are down too then it depends on either exports or government spending to increase economic growth in Japan.
An increase in interest rates can be both a positive and a negative just like a decrease in interest rates can also be a positive and negative. If there is an increase in interest rates, that might be a positive for banks in Japan as they can finally increase the rate on lending for loans to businesses and individual consumers.
But its also a negative for borrowers and they have to deal with higher loan rates and businesses, and especially small business who needs loans more than large businesses and could potentially drive them out of business.
And at the same time is good for those who have savings accounts in banks as they can get a higher return on the savings. So it's both a positive and a negative for an economy,
The Bank of Japan has to decide how much to increase the rate and just how much the rate can help the economy or hurt the economy. Traditionally whenever a central bank increases the key rate, it is assumed or expected that the rate increase can and will begin to lower inflation in an economy.
Yes, domestic demand could be affected and could decrease, but the challenge is domestic demand or consumer hasn't been that great lately as inflation has dampened consumer disposable income and with the rate increase it could cause it to be even worse, as least temporarily.
The Japanese economy never grows that much as Japan is a mature economy, which means economic growth is never again going to be like China or an emerging economy. As, again, it might reach 1 percent if even that for most years or quarters.
Not to be negative but there are constraints on the Japanese economy such as it being an ageing society which means it has a significant population that doesn't spend as much as this needed for economic growth.
And then there is the innovation situation which is greatly needed in Japan now as companies, unfortunately are not just innovating fast enough to improve economic growth.
Yes, AI might be moving into Japan, like it is globally, but Japan seems to be behind the times, expect for the in the area of robotics and semiconductor equipment manufacturing.
And finally there is productive, which to be fair to Japanese companies, is hard to really measure, but it seems, based on the latest metrics Japan is way behind in the productivity zone, which constraints economic growth.
Capital spending is very important for the Japanese economy, whether positive or negative, Japan is still heavily focused on manufacturing which depends a lot on capital or business spending to keep its economy moving forward. And when it decreases the economy decreases.
Yes, Japan has moved more into a service and technology related economy but its focus is still manufacturing as it sometimes thinks it's still the 1980's when manufacturing in Japan was king.
Private consumption or consumer spending is not that great in Japan and hasn't been that great except during the roaring 80's then the Japanese economy was booming. Consumer spending might be half of GDP in Japan, but for sustainable economic growth it potentially should be around 60 percent, which might never happen, as Japan is an ageing society which means some or a lot of its population just doesn't spend enough to improve economic growth.
And yes, inflation is more of a challenge as it reduces the disposable income of Japanese consumers which is needed to improve spending in the economy and get the economy moving forward.
For the most part exports in Japan have been the key economic driver while the rest of the ingredients needed for economic growth has been less than good recently. And with exports down, due mainly to the US tariff situation, they might not get back to normal for a few more quarters.
Japan is a resource-poor country, which means it has to import much of what is needs and when the yen is weak as its been recently at least since the pandemic, import prices will be higher than normal which means consumers in Japan have to pay if importers and companies pass-on their increased prices to the next in the supply chain including the final retail customer.
Housing costs have been increasing recently which of course many potential home owners are either going to wait and or rent until housing prices decrease. The problem is, if the BOJ increases the key rate, loans for new home owners and existing home owners are going to be even higher in the future.
The increase in housing costs is also related to the weak Japanese yen, as again, Japan has to import much or what it needs which again, means importers are going to pass-on their increase costs to the next in the supply chain again means potential home owners are going to have to pay more for their new home or even home re-furnishings or even home repairs.
Japan is very strategic and always finds a way to negotiate in its best interest and this might have been a good example as the US tariff rate was reduced significantly.
And there is the idea of Japanese investment in the US, which many Japanese companies might have been thinking doing all along even before the tariff situation so it really wasn't a win for the US as it must just might have been business as usual for the Japan.
As far as US products are concerned, Japan importers can try to import US products into Japan but it depends on Japanese consumers if they want to buy them, and as history have shown, Japanese consumers just aren't interested in some US products as they are not up to the standard for products that Japanese consumers want.
For example, again, Japan importers can try to import US cars but just aren't up to the standard or quality that Japanese consumers want and need. And most US cars are just too big for the type of roads that Japan has which is why Japan has a lot of mini-vans or small economical cars which fit Japanese roads and the Japanese lifestyle.
Yes, the economist is correct it saying Japan may temporarily return to growth but you never know exactly as a lot depends on how demand in the US develops as US consumers are struggling to afford many things these days and could affect the demand for Japanese products in the future.
Housing investments at times can be very cyclical as potential home owners don't always buy a new home every day or even every month as like potential care buyers is very much a cyclical buy and its not like going to local supermarket everyday. It would get back to normal soon or maybe not it could take a few months before the housing construction investments are smoothed over.
Yes, its seems like the Bank of Japan is finally going to increase its key rate, but that doesn't mean inflating will automatically decrease as it could take several months or more to see any real decrease in the inflation rate.
And there is the possibility that nothing is a really going to change if the BOJ does increase the rate, as the Japanese economy, being as weak as some say it is, could take a nose-dive and GDP could decrease even more or at least temporarily before it begins to improve again.
The most important indicators, which is probably what the BOJ is concerned with is inflation and with that the BOJ most likely is going to increase the key rate to try and reduce inflation.
As the new Prime Minister is a key advocate of economic growth and finding ways to help the economy grow as a key rate increase, at least temporarily, might be in-line with what the Japanese government wants and needs to curb inflation in Japan but not what the government eventually want in the long run.
And again, the Japanese economy just doesn't grow that much but also doesn't contract that much too, as a decrease of 0.2 percent it about normal when it does contract and when it does grow it might be a 0.2 percent increase.
Have a nice day!
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.