Saturday , 19 September 2020

Japan Q4 GDP Growth Boosted By Weak Yen BUT U.S. Protectionism Casting Doubts On Japan’s Sustainable Recovery

According to data released on Monday, Japan’s economy in the fourth quarter increased an annualized 1.0% in the months through October to December, translating into a 0.2% gain on a quarter-on-quarter basis, lifted by a weaker yen which supported exports.  Exports climbed 2.6 % in the last quarter, the fastest growth in two years, on shipments of cars to China and the U.S., and those of electronics components to Asia.

The comments above and below are excerpts from an article by Grant Miller ( which has been edited ([ ]) and abridged (…) to provide a fast & easy read.


External demand, which is exports minus imports, added 0.2% point to the GDP….

Meanwhile, private consumption was revealed to be rather tepid in the report. Private consumption, which makes up approximately 60% of GDP, indicated no growth, mostly agreeing with the flat reading prediction by economists. Rising prices of fresh food and vegetables are expected to have dented households’ purchasing power.

Highlighting a struggle to ramp up inflation to the Bank of Japan’s target of 2%, the GDP deflator – which is a vast gauge of prices, slipped 0.1% in the fourth-quarter a year earlier, declining for a second consecutive quarter.

Housing investment, a bright spot in the Japanese economy due to the central bank’s insistent monetary easing, grew only 0.2%, the slowest increase in four quarters. Meanwhile, on the upside, capital expenditure, which is a key component of GDP, inched higher 0.9 %, rebounding from the 0.3% decline in the third-quarter.

Weak Yen Boosts Exports

Similarly, a number of economists saw risks resulting from anemic domestic demand and trade protectionism…Tying in with this tailwind, however, Japan’s dogged trade surplus with the U.S. may make it an object of President Donald Trump’s criticism.

During a weekend meeting with Japan Prime Minister Shinzo Abe, Trump avoided his previous tirade against Japan for using its monetary stimulus to weaken the yen and gain an unfair trade advantage. Analysts are uncertain a honeymoon would last long, however.

Economy Minister Nobuteru Ishihara stated Japan remained in a moderate recovery trend and anticipated the positive momentum…[would] be sustained, but he left a cautious remark on the outlook telling reporters following the GDP data release earlier on Monday, “Attention should be paid to uncertainty over the global economy and fluctuations in financial markets.”

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Ishihara was not alone on the outlook; analysts were equally careful with regards to it even as a weak yen has provided exports a boost. Hidenobu Tokuda, senior economist at Mizuho Research Institute, said the fact that Japan’s economy grew a fourth consecutive quarter due to exports should be seen as a passing mark for policymakers. “Still, the corporate sector strength has not spread to households who are facing higher costs of living and future uncertainty. The key is how price-adjusted real wages grow to support private consumption from now on.”

U.S. protectionism risks

Despite the economic growth in four straight quarters, the risks of rising U.S. protectionism are casting doubts on Japan’s sustainable recovery.

Trump’s protectionist policies, which have put distress in global markets and regional economies dependent on the huge U.S. market, have kept investors guessing the cloudy outlook for world trade, investment and growth.

During the fourth-quarter, the USD recovered to as high as above 118 yen following Trump’s victory as the new U.S. president. The western currency previously hit lows around 101 yen in October. A weaker yen helped Japan’s exports denote the first annual growth in 15 months last December.

As of writing, the greenback was fetching 113.74 yen. The USD/JPY pair has risen almost 0.50% or 54 cents to the current figure.

Regardless of the positive diplomatic approach, the Trump-Abe meeting on the weekend has barely done anything to alleviate deeper fears about growing US protectionism.

Yoshimasa Maruyama, the chief market economist at SMBC Nikko Securities, wrote in a note to clients:

“I don’t think this summit was any indication of change in Trump’s stance of negotiating with its trading partners based on recognition that a U.S. trade deficit is bad.”

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