Japan economy grows for longest period since 1980s bubble boom days

Japan’s economy is on its longest growth streak since the boom years of the1980s. (Reuters)
Updated 14 February 2018
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Japan economy grows for longest period since 1980s bubble boom days

TOKYO: Japan’s economy posted its longest continuous expansion since the 1980s boom as fourth-quarter growth was boosted by consumer spending, moving Prime Minister Shinzo Abe’s revival plan a step closer to vanquishing decades of stagnation.
The long run of growth is an encouraging sign for the Bank of Japan, hinting that the economy may at last be building up momentum to lift consumer prices toward its 2 percent inflation target.
The economy expanded at a 0.5 percent annualized rate in October-December, less than the median estimate for annualized growth of 0.9 percent, Cabinet Office data showed on Wednesday. That followed a revised 2.2 percent annualized increase in July-September.
Japan’s economy grew a real 1.6 percent in calendar 2017, the fastest increase since a 2 percent expansion in 2013.
An extended run of growth could lead to some speculation that the Bank of Japan can afford to scale back quantitative easing, but economists say it is unlikely as long as the yen is rising and Japan’s consumer prices remain subdued.
Financial markets are already on edge from worries that central banks in the US and Europe will raise interest rates faster than expected to stay ahead of inflation, but the BOJ is expected to lag well behind those peers.
“Economic fundamentals look good and growth this year is likely to be above the economy’s potential,” said Hiroaki Muto, economist at Tokai Tokyo Research Center.
“However, I don’t see any talk of an exit for the BOJ when the yen is rising like this. When financial markets are volatile this hurts Japan’s animal spirits,” he said, referring to investor and consumer confidence.
The dollar slid to a 15-month low against the yen on Wednesday, as investors remained on edge ahead of US inflation numbers later in the day, underscoring fragile sentiment following a recent shakeout in global equity markets.
A rising yen, which tends to push down Japan’s import prices and depress exporters’ earnings, took the gloss off an otherwise respectable report on the world’s third-largest economy.
The GDP data comes after news that Abe’s government has decided to nominate Haruhiko Kuroda for a rare second term as Bank of Japan governor, a sign his ultra-loose monetary policy will remain in place. Investors, however, still have questions about who the deputy governors will be and what policies they are likely to favor.
Japan’s economy has now posted the longest continuous expansion since a 12-quarter stretch of growth between April-June 1986 and January-March 1989 around the height of Japan’s notorious economic bubble.
“The headline figures are somewhat weaker than expected, but that’s not something to worry too much about,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
“Capital expenditure and consumption are picking up. Exports are also strong. Other recent data are also strong. It’s safe to say the economy is in pretty good shape.”
Compared with the previous quarter, gross domestic product (GDP) grew 0.1 percent, less than the median estimate of 0.2 percent growth and following a 0.6 percent quarter-on-quarter expansion in July-September, Cabinet Office data showed on Wednesday.
A Cabinet Office official said increased spending on mobile phones, cars, and dining out drove gains in private consumption, which accounts for about two-thirds of GDP.
To be sure, some economists are cautious about domestic demand because they believe any further declines in global stocks could hurt sentiment and returns on investors’ portfolios.
Real wages fell 0.4 percent in the fourth quarter, the first decline in three quarters, which is another risk to domestic demand, although the tightest labor market in about 40 years may give unions more bargaining power in impending wage talks.
“I’m a little worried about sluggish wage growth,” said Daiju Aoki, regional chief investment officer at UBS Securities.
“I’m also worried about a negative wealth effect from a falling stock market.”
Capital expenditure rose 0.7 percent in October-December from the previous quarter, less than the median estimate for a 1.1 percent increase but up for the fifth straight quarter and a sign of sustainable gains in business investment.
Overseas demand subtracted fractionally from GDP in October-December. Exports rose 2.4 percent, but this gain was offset by a 2.9 percent jump in imports thanks to robust domestic demand.
Since taking office in late 2012, Abe has enacted reforms to draw more women and elderly people into the workforce, raise wages for part-time workers, liberalize the labor market, and encourage business investment.
“Domestic demand is strong enough that it can stand on its own two feet, so you can say Abenomics has matured,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.
“Financial market moves pose risks, but I still expect consumption and business investment to drive future growth.”


German carmakers dismayed as US weighs auto tariffs

Updated 3 min 44 sec ago
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German carmakers dismayed as US weighs auto tariffs

  • US Commerce Department mulls tariffs on car imports
  • “One-sided protectionism has never helped anyone in the long term," says Volkswagen

FRANKFURT: German automakers reacted with dismay Thursday as the US Commerce Department said tariffs on car imports could be on the horizon, potentially opening a new front in a burgeoning transatlantic trade conflict.
“One-sided protectionism has never helped anyone in the long term. Only free and fair trade secures increased prosperity,” a spokesman for industry behemoth Volkswagen told AFP.
American Commerce Secretary Wilbur Ross had announced Wednesday he had initiated a so-called Section 232 investigation on auto trade — which would provide the legal basis to impose tariffs, if his department finds imports threaten US national security — after speaking with President Donald Trump on the matter.
Ross promised “a thorough, fair, and transparent investigation into whether (auto) imports are weakening our internal economy and may impair the national security.”
The move comes as a June 1 deadline approaches for the White House to decide whether imports from the EU will remain exempt from border taxes slapped on steel and aluminum.
Trump’s recourse to national security arguments for potential tariffs echoes his justification for the metals duties.
In a separate statement released by the White House, the president said “core industries such as automobiles and automotive parts are critical to our strength as a nation.”
Germany’s Federation of the Automotive Industry (VDA) noted that German carmakers employ some 36,500 people in the US and car parts producers 80,000 more.
And it highlighted German firms’ “significant contribution to the American balance of trade in cars” with their exports to third countries.
“An increase in tariff barriers should be avoided,” the body said, saying it had “always spoken out in favor of mutual reductions in tariffs and for free-trade agreements.”
German carmakers exported 494,000 vehicles to the US last year, the VDA said, while the Chambers of Commerce and Industry (DIHK) calculated autos and parts accounted for €28.6 billion ($33.6 billion) of Germany’s €111.5 billion in exports to the US.
Shares in Volkswagen, high-end BMW and Mercedes-Benz maker Daimler were among the worst performers in the DAX index of blue-chip German shares just before midday (1100 GMT) Thursday.
Imposing car tariffs would open yet another front in the Republican president’s confrontational rows over trade that have drawn global outcry from allies and partners.
“Evidence of significant economic damage due to the trade conflict is mounting,” tweeted economist Marcel Fratzscher of the DIW think-tank in Berlin.
“The Trump administration now adding new threats with tariffs on European cars could make things a lot worse.”
The latest announcement comes as negotiations with Canada and Mexico over revamping the continent-wide North American Free Trade Agreement (NAFTA) have stalled over auto demands.
Trump had earlier blamed the US neighbors to the north and south for being “difficult” in talks to renegotiate the pact.
The contrast with a Thursday visit by German Chancellor Angela Merkel to Chinese premier Li Qeqiang could not have been starker.
“China and Germany are on the path of promoting multilateralism and bolstering free trade,” Merkel said in Beijing.
Meanwhile Japan’s trade minister Hiroshige Seko said Thursday that car tariffs would “plunge the world market into confusion” and be “extremely regrettable.”
Passenger cars make up around 30 percent of Japan’s total exports to the United States and Tokyo has already threatened Washington with retaliation at the World Trade Organization for the steel tariffs.
The Wall Street Journal reported earlier Wednesday that Trump was asking for vehicle import tariffs as high as 25 percent.
That would move US policy in the opposite direction from China, where President Xi Jinping recently offered to cut border taxes to 15 percent from 25 percent.
In its statement announcing the inquiry, the Commerce Department cited figures showing that US employment in automobile manufacturing had dropped by 22 percent from 1990 to 2017.
“After many decades of losing your jobs to other countries, you have waited long enough!” Trump wrote in a tweet addressed to “our great American autoworkers.”
Trump — whose protectionist platform helped launch him to the White House — has repeatedly floated the notion of steep tariffs that would shield the US auto industry.
He has specifically targeted Germany, and argued that American cars are slapped with higher tariffs than those imposed on European autos.
US cars sold in the EU are hit with 10 percent duties, while the US imposes just 2.5 percent on cars from the EU.
But Washington imposes 25 percent tariffs on European pick-ups and trucks — which the EU taxes at a much lower 14 percent on average.