Output shrunk by 0.2% in the third quarter in Japan, Asia’s second largest economy. This is the second consecutive quarter of negative growth in 2015, with a 0.7% fall between April and June.
While this isn’t exactly good news for the nation’s economy, analysts have mooted that the data could be a sign that Prime Minister Shinzō Abe’s economic policies, known as Abenomics, are beginning to make progress.
More stimulus needed?Mehreen Khan, writing for
The Telegraph, says that although “falling inventories and weak investment drove poor performance”, consumer spending improved, adding 0.3% growth in the three months to September.
According to Khan, policymakers have “waged a war on deflation and Japanese consumer prices are finally showing signs of life.” She points out: “The country managed to exit deflation earlier this year.”
Khan quotes Marcel Thieliant at Capital Economics as saying he was “convinced that more stimulus will eventually be needed”, but that measures would be postponed until January when the Bank of Japan meets again.
Analysts now expect growth to have bottomed out, adds Khan, and “for the economy to begin its recovery in the last quarter of the year”.
Thieliant is further quoted as saying: “Looking ahead, firms’ forecasts for industrial production suggest that the economy should start to recover this quarter.”
The Telegraph opinion
Lack of reform is a riskThe so-called three arrows of Abe’s policies are fiscal stimulus, monetary easing and structural reforms. In a report for
Reuters, Leika Kihara and Tetsushi Kajimoto summarise what analysts say. The data highlights the need for “structural reform aimed at breaking through supply-side constraints, including labour shortages, in a fast-ageing society which suffered from chronic deflation for more than 15 years”, they explain.
Outlining the rationale behind Abenomics, the report quotes Hiroshi Shiraishi, Senior Economist at BNP Paribas Securities: “Abenomics' first two arrows of monetary and fiscal stimulus were meant to buy time, but Japan failed to make progress with painful reforms needed to boost its growth potential.
0.8%
The overall drop in the Japanese economy this year“Without reform (the third arrow), the economy's growth potential remains low, making it vulnerable to shocks and to suffering recessions more often.”
Economics Minister Akira Amari had said in an earlier statement that recovery is on the horizon: “While there are risks such as overseas developments, we expect the economy to head towards a moderate recovery, thanks to the effect of the various (stimulus) steps taken so far.”
Reuters report
Confidence in AbeAnna Kitanaka, writing for
The Japan Times, argues that there are indications of confidence in the economic strategy. “If Japan’s economy is in trouble, you wouldn’t know it from the stock market,” she says.
“In what’s shaping up to be a pretty forgettable year for global equity investors, Prime Minister Shinzo Abe’s Japan is one of the few places providing double-digit returns that are backed by profit growth,” she adds.
She goes on to quote AMP Capital Investors’ Shane Oliver: “The share market is expressing confidence in Abenomics even though the economic data has been patchy. The yen falling over the last few years is feeding into profits and you still have an aggressive monetary situation in Japan.”
This is not the only reason to buy, said Oliver, as “Japan is less exposed to slowing growth in emerging economies than its Asian neighbours, and Abe’s policy program is working”. But it will take time. “If the equity market is a gauge of expectations for a country’s future economic performance, it’s sending a signal of confidence in Abenomics. You can’t turn around a 25-year malaise overnight.”
Others offered further evidence that recovery is on its way. Yoshinori Shigemi, a Global Market Strategist at J.P. Morgan Asset Management, lent his opinion: “The fact that the price-earnings ratio hasn’t increased much shows that analysts are raising their estimates for Japanese earnings.
“Globally, it’s still relatively cheap and there’s still way more room to buy.”
The Japan Times article