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Japan Economy Stronger at 2.2%, Headwinds Remain

Japan Economy Stronger at 2.2% ! Headwinds Remain a Concern

The Japanese economy grew faster than initially estimated in the first quarter, and this is thanks to stronger capital spending but there is a question. Will the global tensions remain a drag on growth and raise risks? Japan is, after all, an export-driven nation that depends on a smooth US/China/Japan relationship for trade to flow freely. Any upset or drag on trade would surely have negative impact on Japan and its economy. The GDP report annualized that the 2.2% revised growth for Q1 was stronger then the forecast of 2.1% growth.

Some economists are now saying that although capital spending was revised up, the overall situation is expected to deteriorate as overseas demand continues to weaken on the back of the US-China trade tensions and of course tariffs. The capital spending component of the GDP report rose 0.3% from the previous quarter, versus the median forecast for a 0.5% increase and preliminary 0.3% fall. As the trade dispute continues, the Bank of Japan will be among central banks to ramp up its current stimulus program which is already one to the most aggressive on the planet. For Japan, net exports, according to an article on CNBC, added 0.4% points to the Japanese GDP growth for that Q1 period.

There are some who are speculating that the trade war between the US and China, which has gone on for over eight months now without a solution tabled, will encourage the Japanese PM Abe to delay the consumption tax hike. Such a hike would damage the strength of the consumer in driving the Japanese economy. If there is a tax hike, it will likely be offset by other stimulus measures to support Japanese households.



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