Japan’s economy continued on a moderate growth path during the final quarter of 2016, driven by rising exports and business investment.

Key Points

Gross domestic product expanded 1 percent on an annualized basis in the three months through December from the previous quarter, according to data released by the Cabinet Office on Monday (median estimate of economists +1.1 percent).

Measured quarter on quarter, GDP rose 0.2 percent (estimate +0.3 percent)

Private consumption was unchanged (estimate 0 percent).

Business spending rose 0.9 percent (estimate +1.2 percent).

Net exports, or shipments less imports, added 0.2 percentage point to GDP. 

Big Picture

Japan’s economy has now expanded for a fourth consecutive quarter for the first time in more than three years. While the yen’s decline following Donald Trump’s election is providing a tailwind for Japanese exporters and corporate earnings, protectionism looms as a risk to global trade. The infusion of fiscal stimulus this year will boost growth, yet wage increases and consumption remain soft, limiting the upside.

Economist Takeaways

“Japan’s economy will probably gain traction in the first half of this year, driven by a pickup in exports,” Masaki Kuwahara, senior economist at Nomura Securities Co., said before the report was released. “Global demand is recovering. Also, manufacturing activities are picking up globally as inventory adjustment has run its course.”

“Still, it is questionable whether the economic recovery will be sustainable. Economic growth may slow later this year,” Kuwahara said.

Given the economic recovery in Japan, there is little chance that the Bank of Japan will add to its easing this year, Kuwahara said. Instead, investors will focus on whether the BOJ will raise the target rate yields on 10-year Japanese government bonds, he said.

The Details

Private inventories subtracted 0.1 percentage point from GDP in the fourth quarter.

The GDP deflator fell 0.1 percent from a year earlier.

Source:
courtesy of BLOOMBERG

by Keiko Ujikane

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