Japan’s economy expands at fastest pace in more than two years

GDP expands at annualised rate of 4 per cent in second quarter on robust demand

Japan’s economy expanded at the fastest pace in more than two years in the second quarter as consumer and company spending picked up, highlighting a long-awaited bounce in domestic demand.

The world’s third-largest economy expanded by a much stronger-than-expected annualised rate of 4 per cent in April-June, posting its longest uninterrupted run of growth in a decade, government data showed on Monday.

Activity is expected to continue to improve in coming quarters, offering the Bank of Japan hope that a tight labour market is finally starting to boost wages and consumer spending, which in turn should make it easier to generate sustained inflation.

The rosy data was also a vindication for Japanese prime minister Shinzo Abe’s government, which has faced criticism that its economic agenda has not done enough to revive the country’s fortunes.


"The engines of consumer spending and capital expenditure both fired well in the second quarter, and that's why domestic demand was so strong," said Hidenobu Tokuda, senior economist at Mizuho Research Institute. "The pace of growth may moderate slightly, but we are still in recovery mode. This is a positive development for inflation."

Gross domestic product expanded an annualised 4 per cent in April-June, government data showed, more than the median estimate for 2.5 per cent annualised growth and the biggest increase since January-March 2015. Compared with the previous quarter, the economy expanded 1 per cent, versus the median estimate for 0.6 per cent growth.

Revised GDP

Japan’s growth had been largely reliant on robust exports earlier in the year, though there were signs private consumption was picking up. Annualised GDP for the previous quarter was revised up to a 1.5 per cent increase, while quarterly real (inflation-adjusted) GDP was revised up to 0.4 per cent growth from a 0.3 per cent increase.

The economy grew for the sixth straight quarter in April-June. The last time the economy had a run of six consecutive quarters of growth was January-March 2005 through April-June 2006. Private consumption, which accounts for about two-thirds of GDP, rose 0.9 per cent from the previous quarter, more than the median estimate of 0.5 per cent growth.

That marked the fastest expansion in more than three years as shoppers splashed out on durable goods such as cars and home appliances. Consumers also spent more money on dining out, the data showed.

These are all encouraging signs that consumer spending is no longer the weak spot in Japan’s economic outlook. Employees’ wages rose 0.7 per cent in April-June from the previous quarter, which was the biggest increase since July-September last year and another sign of the economy’s vigour.

"The fact that the economy was able to grow this much without gains in exports shows our fundamentals are solid," said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities. "Consumption gains could slow a little in the following quarter, but the foundations for a recovery in consumer spending are in place."

Capital expenditure jumped by 2.4 per cent in April-June from the previous quarter, doubling the median estimate for a 1.2 per cent increase. That was the fastest growth in business investment since January-March 2014 as companies spent more on software and construction equipment.

Japanese economy minister Toshimitsu Motegi was more cautious on the outlook for domestic demand and pledged to implement extra measures to strengthen the economy. "If you ask me whether private consumption has fully recovered, I would say it still lacks strength in some areas, which will need to be followed with policy," Mr Motegi told reporters. – (Reuters)