Transcript Document
Japan Economy Watch The economy grew 0.9 percent quarter on quarter, unchanged from the government's initial survey on Feb. 14, and at a year on-year rate of 2%. while the year on year rate had now dropped back somewhat from earlier peaks, growth is still holding up reasonably well. The reasons for this are not hard to identify, since net exports, or the difference between exports and imports, added 0.5 percentage point to growth, an upward revision from the 0.4 percentage point contribution first reported. which compares movements in quarterly GDP growth with net export contributions to growth - is that co-movement between these two is quite strongly correlated, and that the nose dive in GDP in Q2 2007 was closely associated with a weakening in the export contribution. All of this is already rather old hat, but what is perhaps rather surprising to note in the above chart is that Japanese GDP and export growth has actually IMPROVED in the period following the sub prime outbreak in August (and despite a significant construction slump in Japan) when compared with performance just before the problem arrived. This would seem to suggest, to say the very least, that Japanese growth is now significantly "decoupled" from the US - in the sense that exports to that market don't carry as much weight - but is most definitely NOT "decoupled" in the sense of being driven by autonomous domestic demand lead growth. Not only this, but Japanese exports are performing relatively well on the back of rising demand in the rapidly developing emerging economies. This phenomenon is being virtually replicated in Germany, that other ageing-society economy which is driven by export demand. So we need to follow carefully what happens next here, to see what can be learnt. Investment in factories and equipment grew 2 percent from the previous quarter, less than the initial estimate for a 2.9 percent gain in line with last weeks Finance Ministry report. Consumer spending is another area that has been holding up rather better than expected, and this despite plumetting consumer confidence indexes, and rose 0.2 percent on the quarter,and 1.2% year on year, unchanged from the preliminary GDP survey. Household consumption isn't growing at rates that should make us sit up and pay strong attention, and it certainly isn't going to power a consumer driven expansion, but it is holding up acceptably well under the circumstances. Again, this is another data point to follow closely in the coming months to see what it tells us about how things in Japan are likely to evolve.