February 13, 2017

Chart of the Week: Japan’s GDP data: too soon to praise Abe

by Fathom Consulting

According to data released overnight, Japan’s economy grew by an annualised 1% in the final quarter of 2016. Buoyed by the yen’s recent depreciation, both net trade and business investment contributed positively to growth, while consumer spending flatlined.

Feb 13

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Pointing to the steady pace of growth, which was broadly in line with expectations, some commentators have argued that Japan’s economy is back on track. But in our view, it is premature to conclude that today’s data are the fruits of Abenomics. Indeed, much of Japan’s growth momentum came from overseas demand, with efforts to resuscitate the domestic economy failing.

As we have argued in the past, relying on an improvement in overseas economies and yen weakness to spur economic growth is not a sustainable strategy. Moreover, the coveted depreciation of the yen since November is thanks to Donald Trump’s election victory, with expectations of monetary policy divergence, as well as a more ‘risk-on’ environment, the driving force.

In our opinion, Japan’s economy remains weighed down by debt and policymakers must reduce that burden or accept another lost decade. Abenomics must change radically, or be abandoned.

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