Japan exports drive expansion, offset weak consumer spending

Prime Minister Shinzo Abe took office nearly five years ago vowing to “take back Japan” by spurring inflation.  (Pixabay photo)

TOKYO — Japan’s economy expanded at a 1.4 per cent annualized rate in July-September in the seventh straight quarter of growth for the world’s third-largest economy.

The economy is in its longest period of expansion since 2001. But it slowed from a 2.6 per cent annualized rate of growth in April-June, the Cabinet Office reported Wednesday.

In quarterly terms the economy grew 0.3 per cent, slowing from a 0.6 per cent quarter-on-quarter increase in April-June.

Strong exports and corporate investment helped offset relatively weak household demand, which accounts for nearly two-thirds of business activity but remains fragile thanks to sluggish growth in wages.

Private consumption fell 0.5 per cent in July-September from the previous quarter, the first such decline in seven quarters, the report said. In annualized terms, it fell 1.8 per cent.

While the revival in exports thanks to recovering demand in China, the U.S. and other major markets has breathed fresh life into the economy, Japan’s long-term outlook remains uncertain.

Prime Minister Shinzo Abe took office nearly five years ago vowing to “take back Japan” by spurring inflation that he and his advisers said would lead companies to invest and raise wages in a “virtuous cycle” that would break Japan out of a deflationary rut.

Inflation remains flat, however, and companies have balked at raising base wages despite reaping record profits in recent years, anticipating that future demand will shrink as Japan’s population ages and declines. Instead, they have focused on expanding into faster growing overseas markets.

“The bigger picture is that wages are not rising any faster this year than they did last year even though the labour market has continued to tighten,” Capital Economics said in a recent report.

“With Japan’s population set to shrink further in coming years, expanding sales destinations overseas makes good business sense,” it said.

Economists expect growth to slow in 2018-2019, partly because of limits to factory, logistics and hiring capacity and partly because of a sales tax hike promised for October 2019.