Good news for Shinzo Abe as consumer spending and capital investment ahead of the Tokyo Olympics fuels growth
Japan’s economy expanded at the fastest pace for more than two years in the three months to June, with domestic spending accelerating as the country prepares for the 2020 Toyko Olympics and low levels of unemployment encouraged businesses to invest.
The world’s third largest economy recorded an expansion in second-quarter gross domestic product at an annualised rate of 4%, according to figures from the cabinet office on Monday, making the country the fastest-growing of the G7 wealthy nations.
The data comes as a shot in the arm amid rising regional tensions sparked by the US president, Donald Trump, and North Korea’s Kim Jong-un, a war of words that rattled global stock markets last week and could threaten Japan, its economy and the rest of the world.
Japan is shrugging off decades of sluggish growth that it has been attempting to counter with a massive money printing programme championed by the prime minister, Shinzo Abe, to stimulate bank lending, investment from companies and buying among consumers.
The factors that propelled the most recent growth in GDP were led by rising domestic activity, as consumer spending accelerated significantly, while low unemployment helped wages to grow faster than in the previous quarter. On a less positive note, net exports declined by 0.3%.
The overall result was much stronger than expected by the market, as economists had predicted the country would grow by 2.5% on an annualised basis in the second quarter. Japan grew at 1% in the quarter alone, against expectations for a 0.6% expansion.
Japan is now on course for its seventh consecutive quarter of positive GDP growth, which would mark the longest expansion since the turn of the century, as it prepares to host the 2020 Olympic Games in Tokyo.
Preparations for the games may have helped to contribute to growth in public investments, while high levels of employment have also pushed businesses to invest in capital projects, helping to boost the economy, according to economists at French bank Société Générale.
Faster growth could prompt the Bank of Japan to consider ending its quantitative easing bond buying programme, but the stimulus package is not expected to be removed entirely until 2021 to help encourage sustainable levels of growth.
“Even with continued strong economic growth, we believe that the BoJ will continue its easing framework for some time yet,” said Takuji Aida and Arata Oto at Société Générale. “The prolonged state of monetary easing should further help Japan’s economy remain on a steady growth path.”
Abe has pledged to reignite Japan’s economy with a plan dubbed “Abenomics”, a package of reforms and government spending coupled with loose monetary policy from the BoJ. The country has for years been struggling to defeat deflation and slow growth that followed a stock market collapse and property market bubble in the early 1990s.