As the developed world struggles with sluggish economic growth, inflation, and almost nonexistent wage growth, the one country that has defied all expectations is Japan, as Postwar economic expansion numbers are near a record despite all the troubles facing the country.
After several decades of stagnation, this year Japan’s economy finally looks as if it’s starting to reach escape velocity.
Japan’s Economy Near Record Postwar Economic Expansion
According to the government's definition of growth Japan's economy has been in an expansionary cycle since December 2012, and analysts now believe that the country's economy will go on to match the second longest postwar economic expansion this year. In the late 1960s, Japan's economy expanded for 57 months straight, the second longest postwar economic expansion on record.
According to Reuters, following Japan's reported economic growth of 4% annualized for the second quarter, there is now a "strong chance" Japan will surpass the post-war record by September.
Unfortunately, the latest data shows that closely followed consumer spending is not as robust as many analysts believed it to be. Household spending slipped by 0.2% during July year-on-year after hitting a two-year high during June. The median analyst estimate was for growth of 0.7%. Still, the country’s jobs market remains tight with the jobless rate remaining flat at 2.8% in July and 1.52 jobs available per applicant, the highest since 1974.
Overall, the data appears to show that Japan’s economy is heading in the right direction, and it should only be a matter of time before consumer spending growth returns along with higher inflation and wages. Indeed, Reuters reports that local company Torikizoku Co has said that it will raise the prices of its dishes from October for the first time in more than 28 years as according to the company "Various costs, including raw material and personnel costs, have risen and we expect this trend to continue.”
While most economists have focused on Japan’s leading GDP growth, analysts at Jefferies notes that the country’s trade figures tell a more revealing story. Last week, the data showed that the economy ran a surprise trade deficit during July. However, robust export growth of 14.9% was also reported. This development points to the fact that while “pundits might suggest that the turn-around in the economy is entirely due to Abenomics or the wealth effect from the stock market, credit should be given to companies who have finally recycled their profits into higher wages and fresh investment.”
Overall Japanese corporate profits grew 26.6% year-on-year during the first quarter while nominal cash earnings for part-time employees rose 1.7% (68% of the 378 companies covered by analysts reported earnings per share on average 15% higher than estimates for the second quarter). Recent data shows that this trend has continued, albeit at a slower pace. Nonetheless, the country is heading in the right direction and as companies such as Torikizoku start to re-base their operations for a different economic environment inflation and wage growth should accelerate.