Nearly two years after starting what was then a $US1.4 trillion bout of quantitative easing to try and push the Japanese economy out of a deflationary rut and get growth tracking higher, there are few signs of any significant impact from what was called the Bank of Japan’s ‘bazooka’.
The Bank of Japan kicked off the first round of its huge spending program in April 2013, and then expanded it last October from 60 to 70 trillion a year to 80 trillion yen. That’s around $US712 billion a year and it will run for a year or more yet.
The idea was to push consumer inflation up to an annual rate of 2% by next month, from a deflation rate of between 1% and 2%.
That has now been dropped for a more open ended target, thanks to the impact of the lift in the country’s sales tax from 5% to 8% last April 1.
Japanese headline inflation was an annual 2.2% rate in January, but stripping out the impact of the 3% rise in the sales tax, the core rate was just 0.2%, and is now expected to go negative in the next month or so under the impact of weaker energy and other commodity prices (even after a weaker yen is taken into account).
Now it’s also clear the country’s economic growth has lurched back towards the sluggish to negative pace of mid-2014 (in the wake of the sales tax rise).
Revisions to Japanese 4th quarter GDP released yesterday have confirmed the economy is struggling to emerge from last year’s recession.
New data shows the world’s third largest economy expanded by just 0.4%, from the September quarter, against an original estimate of 0.6%.
That means the Japanese economy is growing at about the same pace as the Australian economy, but we have inflation of 1.7% and no fear of deflation.
Japan’s Q4 GDP revised down
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But with the Japanese economy performing sluggishly, like the Chinese economy, it means our two biggest export markets are not travelling well, and won’t be for much of the coming year.
Annualised, the quarter-on-quarter rate was just 1.5%, down from a 2.2% first estimate earlier.
Business spending, originally up 0.2% from the September quarter, is now estimated to have fallen 0.1%.
But private consumption, which originally grew just 0.3%, was revised up to an 0.5% estimate, which is an interesting signal that consumer demand continues to rise following the impact of the sales tax hike.
Some economists are still forecasting Japanese GDP will accelerate in the next quarter or so to an annual rate of 2.25%. But there is also a growing belief the Bank of Japan will have to again expand its quantitative easing program.
Meanwhile Japan reported a seventh straight current account surplus in January, with the balance standing at 61.4 billion yen, or $US509 million, thanks to higher increased exports and lower value of gas and coal imports.
The surplus represents a big turnaround from a deficit of 1.59 trillion yen in January 2014. It was the biggest month to month improvement (over a 12 month period) since comparable data became available in 1985.
Thanks to the weaker yen, exports jumped 15.3% from a year earlier, while imports fell 7.9%, pushing down the goods trade deficit by 1.54 trillion yen to 864.2 billion yen.
The smaller trade deficit reflects higher exports of such goods as cars and electronic components, while crude oil imports plunged 40.5% thanks to the slide in global prices from last June.
The weaker yen boosted the primary income account balance to the second highest level since 1985.
Some economists think the boost to exports and higher consumer spending will eventually push growth higher, but not if deflation returns.
