Japan’s economy grew a lot faster than initially estimated — but no policy change expected
Tokyo — Japan’s economy expanded more than initially estimated in the last quarter of 2017, thanks to an upward revision of capital expenditure and inventory data, confirming the longest run of growth in 28 years.
Global demand for technological products has driven an investment boom in many of the country’s high-end sectors, such as cars, semiconductors and precision machinery, mirroring trends seen in other major Asian exporting nations.
However, despite the solid growth — the eighth consecutive quarter of expansion — analysts say the Bank of Japan is unlikely to bring forward a debate on exit from monetary stimulus, given the sluggish wages that have prevented consumer spending and inflation from accelerating.
Central bank governor Haruhiko Kuroda, who is set to serve another term, rattled markets last Friday by flagging for the first time the prospect of an exit from monetary stimulus if 2% inflation were met in fiscal 2019 — a remark he later tempered.
Yoshimasa Maruyama, chief economist at SMBC Nikko Securities said: "It will take longer to achieve the 2% target. There’s no change to this perception after the GDP [gross domestic product] data that merely confirmed Japan remains on track for stable growth led by global economy’s expansion.
"Inflation holds the key to a debate on exit, but it won’t accelerate as long as wages and private consumption lack momentum even as capital spending rises. In that sense, the focus will be the upcoming annual wage talks, rather than data."
The economy grew an annualised 1.6% in October-December, versus economists’ median estimate for 0.9 percent annualised growth and the preliminary reading of a 0.5% expansion, data showed on Thursday.
The annualised growth rate translates into quarter-on-quarter expansion of 0.4% in real, price-adjusted terms, against an initial reading of a 0.1% growth and the median estimate for 0.2% growth.
There was no significant market reaction during Asian trade to the stronger than expected data.
The upward revision was due to faster than expected gains in capital expenditure, thanks to investment in information and communications such as smartphone and production machinery including robots and labour-saving technology.
Policy makers are keen to stoke a virtuous growth cycle in which higher wages stimulate consumer spending, in turn boosting business investment and accelerating inflation.
However, the central bank also concedes it is difficult to shake the deflationary mind-set that has been entrenched in consumers and companies during 15 years of falling prices.
Underscoring fragile consumer spending, service-sector confidence worsened in February for the third straight month, to a 10-month low, according to government surveys dubbed "economy watchers" for their proximity to consumer and retail trends.
With inflation remaining distant from the 2% target, the central bank is widely expected to keep its massive monetary easing intact at its policy-setting meeting that ends on Friday.
Thursday’s data showed the capital expenditure component of GDP grew 1.0% from the previous quarter, versus the median forecast for 1.2% growth, and the preliminary 0.7% gain.
Private inventories contributed 0.1 percentage points to the overall GDP growth, versus the preliminary estimate of minus 0.1 percentage point.
Private consumption, which accounts for some 60% of GDP, grew 0.5% in October-December from the previous three months, unchanged from the preliminary reading.
Domestic demand contributed 0.4 percentage points to revised GDP, while net exports — or exports minus imports — were balanced, making no contribution, the data showed.
"Recent weak data such as industrial output and retail sales for January suggest GDP growth may slow in the first quarter," said Masaki Kuwahara, senior economist at Nomura Securities.