The Japanese economy grew more slowly in the fourth quarter of 2014 than initially thought. Initial readings put Q4 growth at 2.2%, however, this has been trimmed back to 1.5% on the strength of more comprehensive data (figures on an annualised basis). The levels of inventories held and of capital investment were lower than anticipated, largely accounting for the negative revision.
On the positive side of the balance sheet, the latest Q4 figures indicated that consumer spending was stronger than previously thought which may indicate that perturbations to consumer spending caused by April’s sales tax hike (to 8%) are finally working their way through the system. Private consumption which accounts for about 60% of Japanese economic output, rose by 0.5% in Q4, stronger that the initial estimate of 0.3%.
Q4 showed a 0.4% increase in GDP compared to Q3 – the Japanese economy fell into recession in Q2 and Q3, largely as a consequence of the increase in sales tax, with quarterly contractions of 1.9 and 0.6%, respectively. The Q4 growth figure brings this recession to an end, but domestic demand remains weak.
The Japanese economy is the third largest in the world and has the world’s largest electronics industry and the third largest automobile construction industry, but both of these sectors have been hit by weak global demand (and until the summer) a strong Yen.
The Yen has appreciated strongly against the Euro, climbing from a low level of 149.03 Yen to the Euro on 5th December 2014 to a high of 128.29 on 12th March 2015, dropping it well below the average figure for the past 12 months of 1€ = 139.21 Yen. In contrast, over the last year, it has fallen from 101 Yen to the Dollar, last March, to stand at 121.4 or thereabouts, currently.
China and America are Japan’s major trading partners which is good news from the currency situation. The Yuan shadows the US Dollar very closely, so the cost of Japanese exports (in Yen) to both China and the US has fallen substantially over the past 12 months as the Dollar has strengthened. (For comparison, the Euro has fallen from 1.395$ (in May) to stand at about $1.057 currently).