Econintersect: While the rest of the world struggles against economic slowdown tides, Japan is riding the crest of a wave. First, less than a month ago first quarter GDP came in at a surprising 4.1% annual growth rate. Tonight machinery orders in April 2012 were reported to have surged by 5.8% (according to Reuters, others have 5.7%). This was a big surprise since 2.1% (Reuters) or 1.5% (BBC) gain had been expected following a disappointing 2.8% decline in March. Reuters says the data supports the Bank of Japan’s view that robust domestic demand will help the country’s economy toward a moderate recovery.
Reuters also cites reasons why a robust Japanese economy going forward is not a slam dunk:
But policymakers have little to cheer about with the outlook clouded by a stubbornly strong yen, slowing Chinese growth and market jitters over Europe’s debt crisis.
“Corporate profits are gradually picking up but capital spending is increasing at an even faster rate, partly helped by reconstruction demand,” said Junko Nishioka, chief economist at RBS Securities in Tokyo.
“But considering the recent cautious mood in business sentiment, it’s hard to predict that capital spending will gain further momentum.”
It also should be noted that machinery orders has been a very volatile metric as shown in the following graph from Bloomberg. It is best not to put too much emphasis on any one month number. After all the ups and downs the last year has seen an average monthly gain of just 0.86%.
Other sources (BBC for example) also concentrated on the strong yen as a particular problem for Japan. The Japanese currency continues to soar, as shown in the following graph from Google Finance:
The yen has increased in value against the U.S. dollar by approximately 50% over the past five years.
- UPDATE 1 – Japan machinery orders up, risks to outlook remain (Leika Kihara, Reuters, 13 June 2012)
- Japan GDP Growth: Up 1% in First Quarter 2012 (GEI News, 17 May 2012)
- Japan’s rising machinery orders boost theeconomy (BBC, 13 June 2012)
- Japan Machinery Orders (Bloomberg)
- Yen vs. Dollar (Google Finance)