Japan records longest growth spurt since 1989 - Financial Times

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Workers check their products at a ball-bearing factory in Fujisawa, Kanagawa prefecture. Japan’s economy has recorded its longest growth streak for 28 years despite the pace of expansion slowing in the final three months of 2017. © AFP

Japan’s economy has recorded its longest growth streak for 28 years despite the pace of expansion slowing in the final three months of 2017.

A preliminary reading on gross domestic product from the Cabinet Office reported annualised growth of 0.5 per cent in the fourth quarter, falling from a pace of 2.5 per cent in the third quarter and below the median forecast of 0.9 per cent from economists polled by Reuters.

However, consumption and business investment were both strong, suggesting that Japan’s economic cycle was not on the wane, with robust expansion set to continue in 2018.

The strength of domestic demand is good news for the Bank of Japan and the government of Prime Minister Shinzo Abe, after a recovery that has relied heavily on exports.

“GDP growth slowed sharply last quarter and we think that the economy won’t expand as strongly this year as it did in 2017,” said Marcel Thieliant, senior Japan economist at Capital Economics in Singapore.

“Business surveys suggest that activity accelerated at the beginning of 2018. However, we still think that the expansion will lose vigour this year as the economy is running into capacity constraints.”

Private consumption contributed one percentage point to annualised growth in the fourth quarter and business investment contributed 0.4 percentage points.

They were offset by residential investment, which subtracted 0.3 percentage points; an inventory rundown, which cut another 0.3 percentage points; and government spending, which subtracted 0.2 percentage points.

Net exports also cut 0.1 percentage point from annualised growth. That compares with the previous quarter, where trade added 2.2 percentage points to the total.

Stripping out the inventory changes, which are temporary, suggests that Japan’s economy is still growing in line with its long-run potential of about 0.7-0.8 per cent a year.

Japan’s GDP data are volatile and the initial estimate is based on limited source data. Large revisions are common with the second estimate, scheduled for release on March 8.

Mr Abe came to power in 2012 on a platform of monetary expansion, fiscal stimulus and structural economic reform. That programme has yet to achieve its goal of ending Japan’s decades of on-and-off deflation but it has produced the country’s longest period of growth since the collapse of the bubble economy in 1990.

The prime minister is likely to recommit to his economic programme by reappointing Bank of Japan governor Haruhiko Kuroda, whose term expires in April.

Mr Abe is also pushing companies to raise pay in wage negotiations this spring. Sluggish wage growth has held back consumption and been the main obstacle to higher inflation.