Economy grows 4% in Apr-June quarter

August 14, 2017

TOKYO- The Japanese economy grew at an annualized pace of 4.0 pct in April-June in price-adjusted real terms, bolstered by strength in domestic demand, such as personal consumption and capital spending, which more than offset a drop in exports, government data showed Monday.

In the first quarter of fiscal 2017, Japan's seasonally adjusted gross domestic product rose 1.0 pct from three months before, up for six straight quarters, the first such growth streak in 11 years, the Cabinet Office said in a preliminary report.

The annualized growth was the steepest since the 4.8 pct rise marked in January-March 2015, the government agency said.

The figure was much higher than a median forecast of 2.5 pct growth among 21 economic research institutes polled by Jiji Press.

In nominal terms, the country's GDP expanded 1.1 pct for an annualized increase of 4.6 pct.

"Although the headline numbers were good, consumption still lacked strength," Economic and Fiscal Policy Minister Toshimitsu Motegi said at a press conference.

"The economy is expected to continue recovering moderately," he added.

Aiming to realize sustainable growth led by domestic demand, Motegi signaled readiness to work on priority policy issues, including plans by the administration of Prime Minister Shinzo Abe to promote human resources development and improve Japan's productivity.

The GDP data suggest that domestic demand was becoming the main driving force for the Japanese economy in place of exports that had led economic growth since the second half of 2016.

But some economists question the sustainability of the solid domestic demand.

"The increase in consumer spending was partly due to one-off factors," Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co., said. He pointed to a rise in air conditioner demand due to the heat wave and a recovery in new auto sales after the year-before slump caused by a fuel economy data manipulation scandal at Mitsubishi Motors Corp. Takeshi Minami, chief economist at the Norinchukin Research Institute, said, "The improvement of incomes that contributed to consumption growth is unlikely to continue."

"With the share of household incomes used for spending standing at a high level, as shown in a government survey, personal expenditures are unlikely to rise further," he added.

Noting that wage growth was still not large despite labor shortages, Meiji Yasuda's Kodama said improved productivity and higher incomes are essential for sustainable growth of the Japanese economy.

In April-June, personal spending rose 0.9 pct from the previous quarter in real terms, up for the sixth consecutive quarter.

Private consumption at restaurant and service industries was strong on the back of better employment and income situations. Sales of automobiles, air conditioners and refrigerators were also brisk, partly reflecting replacement demand.

Corporate capital expenditures increased 2.4 pct, led by labor-saving investment chiefly at construction companies and retailers to deal with labor shortages. Housing investment grew 1.5 pct, as demand was solid for both owner-occupied housing and homes for rent.

Public investment increased 5.1 pct thanks to the full-fledged implementation of the government's second supplementary budget for fiscal 2016. The growth was the highest since the current Abe administration was launched in December 2012, exceeding the 5.0 pct rise in July-September 2013. Jiji Press