Japan hits a speed bump

Japan’s GDP grew by 0.3% in the final quarter of 2013, according to a first estimate – the same pace as in the previous three months and around half the figure most analysts had expected. Japan has grown for four quarters in a row now, but the second half of 2013 was far weaker than the first.

Has ‘Abenomics’, the economic revitalisation programme launched under Prime Minister Shinzo Abe after his election in December 2012, run out of steam?

What the commentators said

There’s no need to reach for “the Abenomics panic button just yet”, said Aaron Back in The Wall Street Journal. Japan’s preliminary GDP reports are “subject to wider revisions than those of other advanced economies”, so the second estimate in March may well look much better. And this week’s numbers “weren’t all bad anyway”. Business investment and household consumption are rising.

The drag on GDP stemmed from trade, where a 0.4% rise in exports was overwhelmed by a 3.5% jump in imports. Despite the falling yen making their goods a third cheaper than two years ago, exporters haven’t shifted much extra, said Phillip Inman in The Guardian. Meanwhile, the government’s efforts to stimulate domestic demand “have sparked an imports binge”.

Still, the drag from trade should pass. When a currency falls, import prices rise immediately, but it takes time for exporters to gain market share. Some of the import surge is due to consumers buying ahead of a VAT hike in April. And the improving world economy will raise exports.

Meanwhile, on the domestic front, the Bank of Japan has made it clear it will print more money if need be. The government has thrown its weight behind more generous wage settlements, which would underpin consumption later this year, said the Financial Times.

Abe has to give “some muscle to his structural reforms agenda” if the recovery is to be sustained. Proposals to break up monopolies, loosen regulation and liberalise the labour market have yet to be turned into action. For now, however, investors should stick with Japan.

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