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TOKYO: Japan’s economy posted its longest continuous expansion since the 1980s boom as fourth-quarter growth was boosted by consumer spending, moving Prime Minister Shinzo Abe’s revival plan a step closer to vanquishing decades of stagnation.
The long run of growth is an encouraging sign for the Bank of Japan, hinting that the economy may at last be building up momentum to lift consumer prices toward its 2 percent inflation target.
The economy expanded at a 0.5 percent annualized rate in October-December, less than the median estimate for annualized growth of 0.9 percent, Cabinet Office data showed on Wednesday. That followed a revised 2.2 percent annualized increase in July-September.
Japan’s economy grew a real 1.6 percent in calendar 2017, the fastest increase since a 2 percent expansion in 2013.
An extended run of growth could lead to some speculation that the Bank of Japan can afford to scale back quantitative easing, but economists say it is unlikely as long as the yen is rising and Japan’s consumer prices remain subdued.
Financial markets are already on edge from worries that central banks in the US and Europe will raise interest rates faster than expected to stay ahead of inflation, but the BOJ is expected to lag well behind those peers.
“Economic fundamentals look good and growth this year is likely to be above the economy’s potential,” said Hiroaki Muto, economist at Tokai Tokyo Research Center.
“However, I don’t see any talk of an exit for the BOJ when the yen is rising like this. When financial markets are volatile this hurts Japan’s animal spirits,” he said, referring to investor and consumer confidence.
The dollar slid to a 15-month low against the yen on Wednesday, as investors remained on edge ahead of US inflation numbers later in the day, underscoring fragile sentiment following a recent shakeout in global equity markets.
A rising yen, which tends to push down Japan’s import prices and depress exporters’ earnings, took the gloss off an otherwise respectable report on the world’s third-largest economy.
The GDP data comes after news that Abe’s government has decided to nominate Haruhiko Kuroda for a rare second term as Bank of Japan governor, a sign his ultra-loose monetary policy will remain in place. Investors, however, still have questions about who the deputy governors will be and what policies they are likely to favor.
Japan’s economy has now posted the longest continuous expansion since a 12-quarter stretch of growth between April-June 1986 and January-March 1989 around the height of Japan’s notorious economic bubble.
“The headline figures are somewhat weaker than expected, but that’s not something to worry too much about,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
“Capital expenditure and consumption are picking up. Exports are also strong. Other recent data are also strong. It’s safe to say the economy is in pretty good shape.”
Compared with the previous quarter, gross domestic product (GDP) grew 0.1 percent, less than the median estimate of 0.2 percent growth and following a 0.6 percent quarter-on-quarter expansion in July-September, Cabinet Office data showed on Wednesday.
A Cabinet Office official said increased spending on mobile phones, cars, and dining out drove gains in private consumption, which accounts for about two-thirds of GDP.
To be sure, some economists are cautious about domestic demand because they believe any further declines in global stocks could hurt sentiment and returns on investors’ portfolios.
Real wages fell 0.4 percent in the fourth quarter, the first decline in three quarters, which is another risk to domestic demand, although the tightest labor market in about 40 years may give unions more bargaining power in impending wage talks.
“I’m a little worried about sluggish wage growth,” said Daiju Aoki, regional chief investment officer at UBS Securities.
“I’m also worried about a negative wealth effect from a falling stock market.”
Capital expenditure rose 0.7 percent in October-December from the previous quarter, less than the median estimate for a 1.1 percent increase but up for the fifth straight quarter and a sign of sustainable gains in business investment.
Overseas demand subtracted fractionally from GDP in October-December. Exports rose 2.4 percent, but this gain was offset by a 2.9 percent jump in imports thanks to robust domestic demand.
Since taking office in late 2012, Abe has enacted reforms to draw more women and elderly people into the workforce, raise wages for part-time workers, liberalize the labor market, and encourage business investment.
“Domestic demand is strong enough that it can stand on its own two feet, so you can say Abenomics has matured,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.
“Financial market moves pose risks, but I still expect consumption and business investment to drive future growth.”