Japanese economy rising

According to official data, the Japanese economy grew at 1% compared to the previous quarter.

This is the country’s longest economic expansion in more than a decade.

Background

Japan is the third largest economy in the world by nominal GDP after America and China. It has the fourth largest purchasing power parity. It is also considered the world’s second largest developed economy. After the devastation of the World War II, it achieved steady and significant growth in the second half of the 20^th century. Much of its expansion was due to its highly successful automotive and consumer electronic industries.

The Japanese government, however, is currently embroiled in controversy. Shinzo Abe, Japan’s Prime Minister, has been implicated in two major scandals. He stands accused of misusing his political power and for misappropriation of funds. Abe has staunchly denied the charges. More recently, a member of his cabinet, Defense Minister, Tomomi Inada, resigned amid allegation of a cover-up. Critics have accused the government of tampering with military logs.  

Due to these controversies, Abe’s approval ratings have been on a free-fall. A poll by Mainichi newspaper showed that Abe cabinet’s approval rating had plummeted 10 points. It reportedly stands at 26%, the lowest it has been since 2012. 

Analysis

Japan has blown past industry and market expectations with its growth. According to the official numbers, its GDP expanded at an annualized rate of 4% in the April-to-June period. Industry had forecast a rise of just 2.5%.  

This is the sixth straight quarter of growth for the country. The robust growth in the economy has been attributed to a rise in exports especially smart phones. The economy has also been boosted due to the investments made to the Tokyo 2020 Olympics.

Rob Carnell, chief Asia-Pacific economist at ING told Financial Times that this growth was not due to any flukes. He notes, “This was not one of those flukey one-offs that was caused by a surge in inventories that will be worked down in coming quarters, or one of those random spikes caused by exports and imports growing out of sync.” Recently, Abe re-shuffled his cabinet and noted that economy would be his primary focus.

Assessment

Our assessment is that if the trend of growth continues in Japan, then it is on its way to enjoy its longest run of quarterly growth since the turn of the century. This is also likely to be a reprieve for Abe whose mandate has been severely mired by the multiple scandals.