By: Dr. Mike Campbell
It had been widely expected that Japan’s economic growth would have continued to slow in Q3, possibly even retreating back into a contraction. However, the figures released at the weekend show that the third quarter growth was 0.9%, up from 0.4% in Q2.
The Yen has been strong against other major currencies, most notably the Dollar which has fallen because of slowing economic output at home. Since Japan relies on exports for its economic powerbase, it had been expected that the relative increase in the price of Japanese goods in her exporting markets would have taken its toll on the nation’s economic output.
In the event, the stronger figures have been attributed to an increase in domestic demand which has been sufficient to offset the downturn in export activity. The government subsidies that have been put in place on “green” cars have come to an end.
This has spurred demand for these more “environmentally friendly” cars, leading to the improved figures. A second component of the higher domestic demand is that the government has announced plans to increase taxes on cigarettes and tobacco products. Demand for these goods has also spiked ahead of the tax hike.
It is now being predicted that the growth figures for the final quarter of the year will be sharply down as these one off factors are taken out of the equation and the effects of the higher Yen on exporters are felt in full force.
However, the Yen has depreciated against the Yen since the start of the week which will ease pressure somewhat on Japanese exporters if sustained. The markets had expected the Dollar to fall against the other majors after the Federal Reserve announced the next round of quantitative easing, but the effect has yet to materialize.