February 16th, 2015
Econintersect: Japan reported growth for the fourth quarter 2014, following two quarters of GDP contraction following the 01 April consumption tax hike of 60% greater than the previous rate. However, the GDP growth was below the level that had been generally expected. The fourth quarter GDP was 0.6% larger than the third quarter and 2.2% greater than the same quarter a year ago. The consensus had been for 0.9% growth quarter-over-quarter and +2.5% for the year. Private consumption (+0.3%) and exports (+2.7%) were the big drivers of growth.
This was Japan's fourth recession in the last six years. Recoveries have been completed (GDP back to pre-recession peak) in less than a year for the two immediately preceding recessions but took 4 1/2 years for the fourth recession (The Great Recession 2008-09). The recovery now underway will have to pick up more strength if it is to complete recovery within a year.
Stocks responded to the news with a rally for the Nikkei 225 Index to an 8-year high above 18,000.
We have collected some quotes from various reports about the GDP news.
Financial Times noted that deflationary pressures are still entrenched:
The figures may suggest Japan's economy is back on track after falling into a technical recession in the middle of last year, but with demand growth modest, it will be hard to reach the Bank of Japan's goal of permanently ending deflation.
Daiwa Institute of Research economist Shotaro Kuga (The Wall Street Journal):
"I was surprised by how weak household spending was. The economy is recovering; it is just that the pace of the recovery is less than forecast."
Reuters commented on monetary policy implications:
... the expansion was smaller than a 3.7 percent increase forecast in a Reuters poll, suggesting a fragile recovery for the world's third-largest economy as consumer mood remained soft and uneven global growth weighed on exports.
Still, the return to growth will allow the Bank of Japan to hold off on expanding monetary stimulus in coming months, even as slumping oil prices push inflation further away from its 2 percent target, analysts say.
But Yasunari Ueno, chief market economist at Mizuho Securities in Tokyo was not so sure about the "return to growth" (Financial Times):
"The preliminary gross domestic product release for the fourth quarter confirms the economy is past the worst. But it's not easy to be optimistic about the path of growth from here."
The weak growth concern was also mentioned by Izumi Devalier, an economist at HSBC Holdings Plc in Hong Kong (Bloomberg):
"Japan has clawed its way out of recession but we are looking for a modest acceleration in growth. This is not the picture of an economy that has a lot of spark behind it."
The Wall Street Journal mentioned weak wage growth:
Workers' pay rose 0.1% in the three months through December from the previous quarter after accounting for inflation, less than the 0.6% rise in the previous quarter. Wages have risen less than overall prices for 18 consecutive months through December, government figures show.
And concern about future contributions of trade to growth came from the Financial Times:
With imports also rising by 1.3 per cent, net trade as a whole contributed only 0.2 percentage points to total growth, highlighting how Japan's trade account has become less sensitive to a weak yen.
- Japan exits from recession, but slowly (Robin Harding, Financial Times, 16 February 2015)
- Japan GDP Grows More Slowly Than Expected in Fourth Quarter (Eleanor Warnock and Mitsuru Obe, The Wall Street Journal, 15 February 2015)
- Japan GDP Constant Prices (Trading Economics, 16 February 2015)
- Nikkei leads gains in Asia, hits 8-year high after GDP (See Kit Tang, CNBC, 16 February 2015)
- Japan's economy emerges from recession, growth weaker than forecast (Leika Kihara and Tetsushi Kajimoto, Reuters, 15 February 2015)
- Japan Hobbles Out of Recession With Growth Below Estimates (Keiko Ujikane, Bloomberg, 15 February 2015)