Japanese economic growth best in two years

Japan's economy defied expert predictions and grew at its fastest rate since 2007 in Q3 of this year, continuing the promising recovery from its worst recession since the war.

Monetary easing stimulus by the government can take much of the credit for the upturn, but the nation has also seen a massive rebound in its exports, especially cars and home appliances.

A government report released Friday revealed the expansion is occurring at about double the pace forecast, swelling by 1.3 percent compared to the previous quarter and nearly 5 percent annualised.

“We hope that the recovery will continue into the last quarter of the year, we think it will,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management in an email to investors. 

“As long as the current trend in exports stays on track and the effect from the authorities easing continues then we would say the worst is over and there will be no second drop.”

Both family spending and corporate expenditure went up by about 1 percent compared to the second quarter. The best news, however, was exports which jumped a huge 6.5 percent.

The upswing in fortunes follows a calamitous series of contractions in the nations export driven economy, although many specialists are warning that the stellar figures may be in part due to inventory restocking for corporate entities and said that Q4 may see less growth.

“You have to take into account the unsustainable contribution linked to private inventories,” says Kyohei Morita, head of Asia region economist at Barclays Capital.

However, sentiment is largely positive and the news from Japan came shortly after revelations that the biggest economies in Europe, France and Germany, have clawed themselves out of recession in the last quarter.

Japan tumbled into recession as a flagging world economy in 2008 resulted in less demand for its major exports such as electronics and cars. This is a welcome return to positive growth, but many are cautious and point to a time when the Japanese efforts to stimulate the markets loses its effect.

Consumer spending is likely to stay low, especially when one considers the shrinking and ageing demographic of Japans population, so the country will continue to rely heavily on its export business to push all round growth into next year.

This may force the authorities to introduce incentives for domestic demand such as cash hand-outs and further drops in consumer prices.

Japan climbs its way into positive growth

After nearly 1 percent of economic growth in the last quarter, Japan seems to have finally clawed itself out of recession, after a full year of contraction.

However, analysts fear the recovery is largely due to government policy action and that it will be difficult to keep this momentum going once stimulus packages are stopped.

There were encouraging signs from Europe with two of the major EU economies, France and Germany, coming out of recession. Also, Hong Kong has come through the worst of the crisis and is reporting growth this quarter. Overall, the world economic news is showing that a global recovery is around the corner.

The first positive growth in 12 months didn’t save the Nikkei from dropping over 3 percent however, revealing the growth was not as big as traders predicted.

Japan’s export-driven economy was dragged into recession in 2008 as global demand for its home appliance products and cars slowed dramatically.

This led to government intervention in the financial markets, with a stimulus injection totalling nearly $300 billion ploughed into a flagging economy. The authorities also brought in landmark incentives for purchasing green energy cars, and offered cash hand-outs to certain members of the population.

Due to an increase in demand in China in the latest mini-recovery, manufacturing firms in Japan have benefitted, with export figures increasing 7 percent last quarter.

The future certainly looks much rosier, even considering the poor domestic private consumption by the nation’s ageing population, which rose less than 1 percent despite the government’s hand-outs.

“We are definitely seeing a positive turn-around,” says Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management. “The cautious and pessimistic sentiment seems to be ebbing away now and the Japanese economy is back on the rise. It’s still a long road back to full recovery, but it’s a start.”

“We will see how the economy fares after the stimulus packages finish,” Poulsen added.

Japan’s economy can fluctuate wildly due to its reliance on its export business. When last year’s crisis hit the top world economies, the flagging demand for Japan’s products hit the country hard and it spiralled into recession, quickly following the United States and Europe.

Any recovery in other financial zones will be most welcome for Japan, as it would see a rise in exports to those economies and stimulate its own growth.

The Japanese government have increased its forecast for growth based on the encouraging news from abroad.