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Japan is still in search of a consumer recovery

Business, Economics, Japan
By John Richardson on 15-Feb-2007

Japan’s fourth quarter GPD growth of 4.8%, which was released today, exceeded economists’ expectations. However, although consumer spending rose by 1.1% on an annualised basis, this merely compensated for the 1.1% decline in Q3.
In addition, wages rose by only 0.2% last year, barely up from a decade-long decline. Companies are preferring to pay down debt and invest in new machinery to raising salaries.
A further worry is the yen, which has been at a 20-year low in real terms. If the yen were to strengthen, exports would, of course, decline. In Q3 last year, the contribution of net exports to growth was 1.7%. Without these net exports, the economy would have shrunk by 0.9%.
Let’s hope the Bank of Japan doesn’t rush into an interest-rate rise on the back of the 4.8% rise in GDP, thereby snuffing out any hope of consumer-led growth.