The Japanese consumer is perking up. Figures released on Monday showed gross domestic product grew unexpectedly fast in the second quarter. The data is volatile and often revised. But the unbroken run of expansion, now 18 months long, is good news. Rising household consumption is even better news.
Annualised growth of 4 per cent from April through June was far better than the 2.5 per cent most economists were expecting. The number is also impressive on its own terms. Most developed countries would love that kind of economic performance, although few are used to looking to Japan, long beset by economic stagnation, for inspiration.
That said, the figures need to be put in context. Japan’s data bounces around a lot, yielding the odd stellar quarter — in early 2015, for example, growth hit 4.8 per cent. And preliminary figures can change dramatically. Japan managed to dodge a recession — defined as two consecutive quarters of contraction — later in 2015 thanks to a big upward revision of initial statistics. Hence the apparent market indifference: Japan’s Topix stock index dipped 0.8 per cent on Monday morning.
There are two messages here. First, Japan is now enjoying its longest growth streak in more than a decade. That suggests the economy has grown more resilient under Prime Minister Shinzo Abe’s reform programme, albeit aided by a strengthening global economy and the Bank of Japan’s ultra-easy policies. As Abe battles to regain popularity, he will welcome even marginally helpful headlines.
Second, household consumption is picking up. On an annualised basis, spending rose 3.7 per cent, aided by a near 10-per cent rise in purchases of big-ticket durable goods. Barclays economists attribute this partly to lower unemployment and higher base pay, which has increased for four years.
A key goal of Abenomics is to create a virtuous circle where workers earn more, spend more, and push prices up, creating quicker inflation, and thus more pay rises. That has proven a tall order so far. Overall wage growth has lagged a tight labour market; and last month the BOJ pushed back its goal of hitting 2 per cent inflation for a sixth time. Extra spending on cars and meals alone will not make the difference, but it is a step in the right direction.