Japan's economy grows 0.2% in Oct.-Dec., spending edges up, exports weak
Ideas
The Japanese economy is a very stable economy but because its both a mature economy and seems to be stuck in a somewhat stagnant mode it doesn't grow very much as a 0.2 percent annualized growth indicates.
Annualized growth is just a projection of estimate of what the growth would be for the entire year and 0.2 percent, again, is not that much, but at the same time as the Japanese economy is one of the 5 largest economies in the world that might still be considered a lot of economic activity.
And yes, unfortunately, exports and especially auto shipments to the US decreased as it was not a surprise and has been expected ever since the tariff situation went to effect.
The real surprise might be related to personal consumption or consumer spending increased even through inflation in Japan continues to be a challenge for Japanese households and consumers overall.
Again as Japan is a very mature economies it doesn't grow that much as it takes a significant amount of resources related to business investments, consumer spending, foreign investments in Japan to grow the economy.
And an increase of Japan GDP of 0.1 percent for the July-September period is about what Japan's GDP has been doing over the last few years, so its no surprise as again, the economy seems to be stagnant or stuck in a rut and can't seem to get out of it, and now with the US tariff situation placing more constraints on the economy is going to take even more resources to get the economy moving again.
Not to criticize or be negative but economy growth estimates or projections can sometimes be like a crap shoot as you just don't know exactly what's going to happen in the future as you are dealing people and behavior and its a very complicated situation to estimate.
But a forecast of 1.48 percent might have been a little too positive as even the best of times recently hasn't seen that much annualized growth. But at the same time, there is always some kind of pressure to make the estimates, forecasts, or projections sound better than what is really happening as a way to keep the financial markets happy and not go into some kind of nose-dive.
As the article suggests you can easily see the difference between nominal GDP growth which includes inflation and real GDP growth without inflation. So inflation in the nominal GPD was about 3.4 percent which is where most articles have suggested inflation has been at in Japan for a long time or ever since the pandemic at least.
And again, an real GDP of 1.1 percent is about where the Japanese economy is at and probably is not going to grow more than that as even at 1.1 percent that might be considered a positive as that is still a lot of economic activity for the 4th or 5th largest economy in world.
Private consumption or consumer spending, while yes, maybe half of the economy, is still not where is should be as it should be even more at about 55 or even 60 percent of Japan's GDP but unfortunately, due to an ageing population and other factors such as inflation and or the fact that traditionally the Japanese are more savers than spenders it hasn't been a able to get to 55 or even 60 percent where is really should be.
As far as mobile phones are concerned it can be suggested that the I phone has taken much of the market share in Japan and maybe Samsung has some market share and yes, even maybe some Chinese mobile phones are making some in-roads in Japan these days.
For accommodations, the huge increase in foreign tourists might be boosting the hotel industry as each month it seems is a new record in Japan for foreign arrivals.
And its no surprise that spending has been in decline due to the increase in supermarket price increases as Japan has to import much of what it needs, including food resources and importers and wholesalers pass-on their increased costs to the next in the supply chain including the final retail customer.
And yes, as the US tariff situation has hit Japan, even the domestic car market is feeling the effects as domestic car dealers might be under pressure to increase prices to make up for the losses in the US, which of course means Japanese consumers might be less than happy about buying a new car now or even leasing a new car now.
Personal consumption or consumer spending is always a little slow as Japanese consumers just don't spend like US consumer or more like how US consumers used to spend as even in the US inflation has reduced spending somewhat there too now.
At the same time, higher wage increases in Japan is not going to be a guarantee that it will improve consumer spending in Japan, as it must be remembered that up to 70 percent of the Japanese workforce doesn't work for the large name-brand companies but for small and mid-size companies which don't have the profit margins needed to match the wage increases of the large companies in Japan, As result inflation is still going to be a major challenge for most Japanese households.
Yes, salaries will probably increase in April but not to the level that is going to diminish the inflation situation and especially for the 70 percent or so that work for small and mid-size companies as they will continue to struggle with inflation which means their disposable income is going to continue to be challenged and their purchasing power is also going to be compromised in the future.
But to be fair, its going to take more than the 5 plus percent increase in wages, given out last year, to help all Japanese households as again, the small and mid-size companies just don't have the resources needed to match what the large companies have in Japan, which again, not to continue to beat same tune, but consumer spending is not going increase that much unless all Japanese households or all Japanese consumer can get a significant wage increase in April and not just the large companies workers in Japan.
Yes, its possible prices could begin to decrease during the January-March period, but like the article suggests consumers have got to see and feel that its going to last and not just a one month situation and that could take several quarters before Japanese consumers are convinced that prices are finally decreasing as they will see it in their disposable incomes and in the increase in their purchasing power at the the supermarket.
And yes, its possible the effect of the US tariffs on Japanese auto shipments to Japan has not been as bad as expected, but at the same time its still more than what it was before the US tariff situation took effect or before March/April 2026 when the tariffs were suggested.
And then there is always the idea that demand for Japanese autos might have just hit a mild downturn which happens sometimes as consumers might have taken a short break from buying a new car in Japan. And there are many variables that could be the reason for the weak auto shipments and not just the US tariff situation.
The article doesn't say if the cabinet official is form the US or from Japan, but the language used suggests its a US cabinet official and of course the person is going to suggest the tariffs are having an affect on Japanese autos or consumers, but again, that's just one person's opinion.
And yes, are are still significant uncertainties in how all of this is going to play out in the long-term as unfortunately, due to past behavior of the US powers to be can change the tariff situation in their favor tomorrow if they want or need to.
Yes to be fair, as with any situation, most likely Japanese consumers are not sitting around thinking about the US tariff situation as they have their own lives to manage and live without all of the noise in the media these days.
Yes, these days everything is now interconnected which means what happens in China affects EU countries and what happens in Brazil affects countries in Asia and so on, and its a hyper connected world today and there is no country that is alone as what happens unfortunately in one country can affect another country very quickly.
And as the supply chains globally are so hyper-connected that if there is a glitch in trade or even the supply chains it/they can have significant major outcome all through the trade zones as or the global supply chains now.
Not all foreign tourists that go to Japan are big spenders as some might be there on limited budgets, but for the most part, the Chinese in the past, with their income increasing significantly, have been the biggest spenders in Japan, but as Chinese tourists going to Japan has seen a significant decrease, foreign spending by other nationalities might not be the same as before or reach the level of the Chinese tourists of before the pandemic period.
A decrease of 0.3 percent in imports into Japan is not really a significant drop as it could just be related to the margin of error amount in statistical reporting and or it could just be slight increase in the Japanese yen, which helped import prices a little more which means value might have not increased that much overall.
Business investment in Japan is very important due to the fact that in the GDP there is consumer spending + business investment spending + government spending and then of course export - imports.
As Japanese consumer spending is at times weak or not up to the potential where it should be the other variables need to kick and try to offset the less than needed consumer spending in the Japanese economy.
But it was good that demand for semiconductor devices was stronger than normal and of course research and development services which are always important for all economies.
But whether good or bad, the increase of software bought by companies due to a supposed labor shortage could be seen as maybe companies just can't find the labor needed for their companies and or they aren't willing to increase their costs as needed to bring the needed people for their companies.
Housing investments in any economy is a major variable and in the US right now it has been suggested that housing investments are decreasing due to the fact that young families just can't afford to buy a new home which means less growth for the US economy in the future.
And the same thing is happening in South Korea too as young families just can't afford new homes and apartment rentals have been increasing significantly the last few years.
Nominal GDP is not really that important except to see the increase in inflation as nominal GDP include economic growth plus inflation which real GDP growth is just economic growth without inflation, which is more reliable metric to look at.
But an increase of 0.6 percent for the July-September period is really not that much of an increase but if you look at inflation alone it has been suggested inflation is around the 3 percent level which is still above the Bank of Japan's target of 2 percent, which is considered a manageable level for most economies.
Have a nice day!
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