The strong growth in household spending in Japan led to a 0.5 percentage point increase in the country's GDP in the second quarter. But rising consumer costs and an increase in the number of people infected with the coronavirus are giving rise to concerns about a slowdown in the second half.
 |
| [Tokyo, Japan] |
The state of the Japanese economy has improved to the point where it was before the crisis. After being unchanged in the first quarter, the preliminary figures that the government released on Monday indicate that the gross domestic product (GDP) expanded by 0.5% between April and June. This comes after the GDP remained unchanged in the first quarter.
This acceleration in growth during the second quarter is explained by a strong surge in household consumption (+1.2%) in Japan, which occurred after the lifting of the health restrictions that had been put back into place in Japan between January and March in response to the Omicron variant of Covid-19. These restrictions had been in place in Japan because of the threat posed by the virus.
According to updated estimates, the level of industrial output in Japan recovered more strongly in June than was previously declared. This was driven by the lifting of the Shanghai containment, which had caused the greatest dip in Japanese manufacturing activity in two years in May. After an initial estimate of +8.9%, this indicator increased by 9.2% for the month of June over the previous month. In the month of May, it dropped 7.5%.
On the other hand, the contribution of foreign trade to GDP was zero, while Japanese exports, which have historically been a driver of the national economy, were slowed down. This was due to the confinements in China, which also slowed down imports, and the fall of the yen, which caused the trade balance to become unbalanced. Since August of last year, Japan has consistently maintained a trade imbalance.
This circumstance does not help to stabilize its currency, which is also suffering from the growing gap between the still extremely accommodative monetary policy of the Bank of Japan (BoJ) and the monetary tightening at work in the other developed economies, with the United States of America taking the lead, to combat high inflation. This gap is causing the currency to suffer.
It is also quite probable that the increase in consumer prices throughout the archipelago will have a significant and negative impact on household expenditure during the third quarter. Similar to how there has been an increase in cases of coronavirus infection. Since the end of June, Japan has been dealing with a seventh wave of Covid-19 cases, which is the most severe so far in terms of the number of cases registered each day. Even if there have been no limitations stated, this should nonetheless have a negative impact on the economy.
In a note from UBS, Masamichi Adachi and Go Kurihara commented, "We are not overly pessimistic, however." They noted that "the household savings rate is quite high and corporate profits are strong, which means that the potential for increased spending is significant" over the next few months. This was in reference to the fact that "the household savings rate is quite high and corporate profits are strong."
The Bank of Japan cut its projection for the growth of the Japanese economy in 2022-2023 to 2.4% from 2.9% in its previous forecasts in April. However, the Bank of Japan lifted its growth outlook by 0.1 points for 2023-2024, which is now 2%. It forecasts growth of 1.3% for 2024-2025, compared to only 1.1% up to that point.