Japan's economy recorded impressive growth in the second quarter of 2023, government data showed on Tuesday, evidence that the country is finally recovering from the coronavirus slump, although signs of significant challenges remain. .
Japan's economic output increased at an annual rate of 6% in the last three months of this year, according to Japan's Cabinet Office. This is the third consecutive quarter of expansion, following a revised 3.7% increase in the January-March period and a slight increase of 0.2% in the previous quarter.
Rapid economic growth was supported by the strong performance of the country's export sector. The second quarter numbers shocked analysts. Analysts had expected Tuesday's data to show healthy growth, but the result was more than double the average forecast of economists surveyed by Bloomberg.
Still, despite the impressive growth, a closer look at Tuesday's underlying data, particularly the drop in domestic consumption, leaves plenty of room for concern, said Sayuri Shirai, a professor at Keio University's economics department and former Bank of Japan board member. he said. Japan.
Although Japan's gross domestic product (GDP) has finally recovered to essentially its pre-pandemic size, “the inside is not that strong,” Shirai said. “The only reason for the higher-than-expected GDP growth is coming from outside,” he added, citing a surge in exports and tourists visiting Japan.
Households and businesses alike are cutting back on spending at home. “This really suggests that the domestic economy is not doing well,” she says.
Japan is the world's third largest economy and by far the largest creditor country. This means that its economic performance has an impact all over the world.
The new coronavirus did not hit Japan's economy as hard as other countries. But the damage has been long-lasting, in part because of the pandemic's supply chain crisis in its export-based economy and because the country has been slower than many countries to roll back virus prevention measures.
Tuesday's data shows Japan is finally catching up. The strong growth in exports suggests that the global logistics network has largely resolved the problems that were hampering the supply of critical parts to Japan's auto sector and other industries.
The country is also benefiting from a flood of tourists following the lifting of travel restrictions that kept most travelers out until November. More tourists could arrive after China last week lifted a ban on group travel to Japan and other countries.
Tuesday's data is “good news for exporters and manufacturers. It's good news for the services industry,” said Stefan Anrich, senior economist at Moody's Analytics.
However, domestic spending has not kept up. In fact, the hold-up in imports accounted for part of the large contribution from exports.
“Most people expected the domestic recovery to take longer,” Anric said. “The fact that we are still in the second quarter of 2023 and there are question marks everywhere is not a good thing.”
Domestic consumption is slowing down, partly due to the weak yen. Japan relies heavily on imports for food and energy, and the Japanese currency's multi-decade low value against the dollar is driving up costs and causing inflation at levels not seen in the country in a generation.
The currency depreciation is primarily caused by Japan's monetary policy, which has kept Japanese interest rates at rock-bottom levels even as the United States and other countries have gradually raised interest rates.
Tohide Kiuchi, an economist at the Nomura Research Institute, pointed out that the weak yen is a double-edged sword for the economy.
“This could be a positive for exporters, increasing their competitiveness and profitability,” he said. “But that could hurt consumption.”
Japan has long suffered from sluggish economic growth. Corporate profits and wages have been depressed for decades, and the problem looks likely to get worse as Japan's population shrinks and ages rapidly, reducing workers and consumers alike. .
The country has worked to overcome economic inertia with massive government spending and ultra-low interest rates aimed at encouraging businesses and households to borrow and spend.
But growth has been lower than expected for years, and the combination of Japan's rising debt and weak yen is putting pressure on the Bank of Japan to rein in its size.
Izumi Desvalier, Bank of America's chief Japan economist, said Tuesday's data could be a stepping stone for the Bank of Japan to begin easing its ultra-easy monetary policy, which has long been hampered by weak growth. Stated.
The Bank of Japan's policies aim to create a virtuous cycle in which rising corporate profits boost stagnant wages. And Tuesday's data could suggest that “a virtuous cycle is taking shape,” DeVallier said.
Still, the country's heavy dependence on exports has made its recent growth vulnerable to economic downturns in other countries. Recent weakness in China, Japan's largest trading partner, is of particular concern.
“There are clear signs of a slowdown in China and Europe,” said Nomura Research Institute's Kiuchi. This means that “the stability of this high growth rate is uncertain.''
