Japan rebounds with 0.5% growth but trade war fears persist

TOKYO • Japan bounced back to growth following its first contraction in two years, official figures showed yesterday, but fears of trade wars involving the United States clouded the outlook for the world's third-largest economy.

The Japanese economy grew 0.5 per cent quarter on quarter in the April-June period, compared with a 0.2 per cent decline in the January-March period, according to data from the Cabinet Office.

The growth figure - annualised at 1.9 per cent - was better than what analysts had expected, beating a market consensus of 0.3 per cent growth compiled by Bloomberg News.

The data represented a quick turnaround after a series of eight consecutive quarters of growth ended in the first quarter, interrupting a winning streak not seen since Japan's "miracle" boom of the 1980s.

"The Japanese economy staged an ideal rebound, partly backed by robust corporate activities," Dai-ichi Life Research Institute chief economist Hideo Kumano told Agence France-Presse (AFP).

But analysts warned that US-led trade wars could be a major risk factor for an economy still struggling to win a long battle against deflation.

US President Donald Trump has unsettled rivals and allies alike with harsh trade rhetoric and a raft of tariffs that have affected sectors ranging from agriculture to automobiles. Mr Trump's threat to impose stiff tariffs on vehicle imports remains a concern for Japanese automakers.


The Japanese economy staged an ideal rebound, partly backed by robust corporate activities.

MR HIDEO KUMANO, Dai-ichi Life Research Institute chief economist, on the 0.5 per cent growth in the April-June period.

"Concerns over the potential auto tariffs can't be ignored," said Japan Research Institute economist Yusuke Shimoda.

"Since the automakers have vast supporting industries, the impact of the tariffs would spread widely," Mr Shimoda told AFP.

Mizuho Research Institute senior economist Kentaro Arita estimated that potential US tariffs could cost Japan's auto industry as much as US$10 billion (S$13.7 billion).

And threatened auto tariffs could deal a blow to the vaunted "Abenomics" policies of Prime Minister Shinzo Abe, who is aiming to secure his premiership by winning his party's presidential election next month.

Mr Abe launched the pro-spending "Abenomics" policy blitz after taking office in late 2012, combining ultra-loose monetary policy and fiscal stimulus in a bid to boost the country's economy.

However, consumer spending has remained stubbornly lacklustre, with companies still stingy on wage hikes despite healthy profits.

In late July, the Bank of Japan revised down its inflation forecasts, making minor tweaks to a monetary policy that has so far failed to lift prices.

According to yesterday's data, private consumption - which accounts for some 60 per cent of Japan's gross domestic product - rose 0.7 per cent, recovering from a 0.2 per cent decline in the first quarter.

Business investment jumped 1.3 per cent following a 0.5 per cent gain in the previous quarter, thanks partly to booming construction ahead of the 2020 Tokyo Olympics.

But analysts also warned of risks related to record downpours in western Japan last month, which killed more than 200 people and devastated local economies.

"The impact of the heavy rain may be visible for the July-September period, which would weigh on the economy," said Dai-ichi Life Research Institute's Mr Kumano.

Among other risk factors is the impact of a deadly heatwave that claimed 124 lives last month.

"Usually, a hot summer is a positive factor but it's too hot this year and that may affect economic activities negatively," Japan Research Institute's Mr Shimoda said.


A version of this article appeared in the print edition of The Straits Times on August 11, 2018, with the headline 'Japan rebounds with 0.5% growth but trade war fears persist'. Print Edition | Subscribe