Japan’s Q1 GDP grows at faster pace, but trade war blunts outlook

Japanese consumer spending remained weak as wages have not risen as previously expected. (Reuters)
Updated 10 June 2019
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Japan’s Q1 GDP grows at faster pace, but trade war blunts outlook

  • Japanese economy grew at an annualized 2.2 percent in January-March
  • The world’s third-largest economy is facing growing downward pressure as the US-China trade war intensifies and global demand wanes

TOKYO: Japan’s economy grew slightly faster than initially estimated in the first quarter, thanks to stronger capital spending, but analysts say global trade tensions remain a drag on growth and raise risks to the outlook for the export-reliant nation.
The world’s third-largest economy is facing growing downward pressure as the US-China trade war intensifies and global demand wanes, while at home consumers are reluctant to spend.
“Although capital spending was revised up, it is expected to deteriorate as foreign demand continues to weaken due to the US-China trade tensions,” said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.
“Consumer spending remains weak as wages have not risen as previously expected. If external demand worsens further, it could dampen both corporate and consumer sentiment and rein in their spending.”
The economy grew an annualized 2.2 percent in January-March, stronger than economists’ forecast for 2.1 percent annualized growth and the preliminary reading of the same rate of expansion, Cabinet Office data showed on Monday. In the fourth quarter, gross domestic product (GDP) rose an annualized 1.8 percent.
The annualized growth rate translates into quarter-on-quarter expansion of 0.6 percent from the previous quarter, compared with a 0.5 percent growth in the initial reading and the median forecast.
The capital spending component of GDP rose 0.3 percent from the previous quarter, versus the median forecast for a 0.5 percent increase and the preliminary 0.3 percent fall.
Private consumption, which accounts for some 60 percent of GDP fell 0.1 percent in the first quarter from the previous three months, unchanged from the preliminary reading. The revised GDP confirmed imports fell faster than exports in the first quarter, underlining the broadening pressure across the economy as consumers grow more cautious.
That may explain why a separate Cabinet Office survey showed a worsening in sentiment in a key group of employees. The called “economy watchers” sentiment index, which measures business confidence among workers such as taxi drivers, hotel workers and restaurant staff worsened to about a three-year low in May.
Group of 20 finance leaders on Sunday said that trade and geopolitical tensions have “intensified,” raising risks to improving global growth, but they stopped short of calling for a resolution of the deepening US-China trade conflict.
The Bank of Japan is among major central banks that could come under pressure to ramp up its already massive stimulus program, as the trade dispute raises fears of a global recession. BOJ Governor Haruhiko Kuroda has said rates could be kept ultra-low for at least one more year to support the economy.
Net exports — or exports minus imports — added 0.4 percentage point to growth, while domestic demand contributed 0.1 percentage point to GDP — both were unchanged from the initial reading.
Japanese exports contracted for the fifth month in April due to a slump in shipments of chip-making equipment to China, while a private survey last week showed the nation’s manufacturing activity swung back into contraction in May as export orders fell at the fastest pace in four months.
The data underlined the growing threat to the economy from the bruising Sino-US trade war, and has stoked speculation that Prime Minister Shinzo Abe may delay a sales tax hike for a third time to avoid a further blow to consumer spending.
However, the government has indicated it will go ahead with the sales tax hike to 10 percent from 8 percent in October, barring a big economic shock on the scale of the collapse of Lehman Brothers in 2008.
Mutou at Tokai Tokyo Research expects the government to raise the tax, saying its plans for a host of stimulus steps would help ease its effects on households.


Nissan post-Ghosn governance steps, board win shareholders’ approval

Updated 1 min 8 sec ago
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Nissan post-Ghosn governance steps, board win shareholders’ approval

  • The Japanese automaker had seen profits and dividends tumble amid a high-profile scandal involving its former chairman Carlos Ghosn
  • Some shareholders expressed worries about the future of the automaker

YOKOHAMA, Japan: Scandal-battered Nissan won shareholders’ approval Tuesday for a new system of committees to oversee governance and for keeping Chief Executive Hiroto Saikawa on its board.
The Japanese automaker had seen profits and dividends tumble amid a high-profile scandal involving its former chairman Carlos Ghosn. Some shareholders expressed worries about the future of the automaker.
Saikawa and the other board members, including French alliance partner Renault Chairman Jean-Dominique Senard, bowed deeply at the meeting at a convention center in the port city of Yokohama, where Nissan Motor Corp. is based.
“I’d like to offer my deepest apologies, representing the company, for how the misconduct has caused serious concern for our shareholders,” Saikawa said.
Ghosn, who led Nissan for two decades, was arrested in November and is awaiting trial in Japan on charges of financial misconduct, including falsifying documents related to retirement compensation. He says he is innocent.
The proposals to have committees overseeing compensation, board nominations and auditing required a majority of shareholders for a quorum and two-thirds of those voting for passage.
Approval was shown by clapping among the more than 2,800 people present at the meeting. Most of the votes were submitted in advance.
French automaker Renault, which owns 43 percent of Nissan, had earlier signaled it may abstain, saying it wanted more representation on the committees.
To satisfy that request, the committees have Senard, who replaced Ghosn on the Nissan board, and Renault Chief Executive Thierry Bollore.
Saikawa told shareholders he had “two kinds of responsibility,” for what had happened in the past as well as building toward a future and a recovery, including nurturing his successor.
“I would like to work toward putting Nissan on a stable track,” he said, asking for shareholders’ approval for his remaining as Nissan’s leader. “I want to speed up the preparations for a succession.”
Although Nissan has been trying to put the scandal behind it, many have been wondering why the alleged wrongdoing, if true, had gone unchecked, especially how much Saikawa knew. One shareholder asked whether Nissan officials besides Ghosn shared in the alleged misconduct.
For the fiscal year that ended in March, Nissan’s profit plunged to about half of what it was the previous year, partly because of the scandal, as well as problems in the lucrative North American market. The maker of the Leaf electric car and Infiniti luxury models is projecting a further deterioration in its earnings, but promising a recovery for the year after that.
It logged $83 million (¥9.2 billion) in costs for the fiscal year that ended in March from alleged underreporting of Ghosn’s compensation.
The proposal, which won shareholders’ approval, called for an 11-member board, including seven outside directors such as Andrew House, formerly with Japanese electronics and entertainment company Sony Corp.
For the appointment of directors, a third of the shareholders made for a quorum, and passage needed a simple majority of those voting.
Some analysts suggest a deepening rift between Renault and Nissan after a planned merger between Renault and Fiat Chrysler fell through earlier this month. Nissan expressed reservations about immediately joining the merger.
Some shareholders expressed worries about the alliance, and one who stood up to ask a question said the main person who had made decisions, referring to Ghosn, was now gone.
Nissan held an extraordinary shareholders’ meeting in April to oust Ghosn. Last week, Mitsubishi Motors Corp., a smaller Japanese automaker in which Nissan owns a 34 percent stake, won shareholders’ approval to oust Ghosn.