Knock another brick in the wall of belief about a commodity price turnaround – it is still to early to be sure, the Japanese economy is very fickle, but we seem to be seeing the strongest signs for years that the Japanese economy is shaking itself out of its long deflationary rut and sluggishness.
In fact some analysts are saying the data for October issued in the last week shows clear signs of a hesitant recovery in the Japanese economy last month.
This should be seen as good news for Australia because Japan remains our second biggest export market after China and services and agricultural products have been leading the way, on top of rising prices for coal and iron ore exports (and other raw materials and metals).
Mind you we have been here before and the economy has seem paused to rebound, only to be whacked by earthquake and tsunami in early 2011, tax changes, the slide in oil prices, weakening global demand and spats with China.
But yesterday we saw retail sales and household spending figures that were much better than expected – yes they still fell, but by much less than expected.
The labour market remains tight and inflation is definitely back and deflation is easing (like in China and the eurozone).
Retail sales grew 2.5% month-on-month in October, their quickest pace since May 2014 when they rebounded from an increase in the national sales tax the previous month. October’s result comfortably beat the revised 0.3% gain in September (previously zero) and exceeded the 1.1% forecast from the market.
Year-on-year, retail sales fell 0.1% in October, a less than the revised 1.7% fall (previously a 1.9% drop) in September, and far better than the 1.6% market estimate.
Overall household spending only shrank by 0.1% last month – much better than expected. Economists said the rate of fall in household spending over the past year slowed to minus 0.4% from minus 2.1% the previous month.
Earlier this month the government said the economy grew by an annual 2.2% in the September quarter, after a 0.7% rise in June. It was the third straight quarter of expansion and could easily be revised away as initial good reports have been in the past. We will know in several weeks.
But exports recovered, offsetting weak private consumption and business investment.
The jobless rate remained steady at 3%, the lowest rate again for 21 years.
Last week, data showed Japan had saw inflation headlines for the first time in eight months. and the Bank of Japan’s ‘core’ inflation measure, which excludes fresh food and energy, rose 0.3% compared with 0.2% a month earlier.
With the yen falling from ¥103 to ¥113 against the dollar since the election of Mr Trump earlier tis month, economists say Japan should be reporting stronger figures especially on inflation this time next month and ito the early months of 2017.
But if OPEC doesn’t do a production deal and oil prices slide sharply back to around $US30a barrel, as many analysts and oil traders warn could happen, the deflationary impact of that might be enough to offset the positives from the weaker yen (which will also boost exports and GDP next year, and perhaps business investment.
But Japanese wage growth remains (like Australia) the economies weak point and consumers, though spending more, won’t go much further without larger wage rises than what they have been seeing.
After stripping out inflation wages have been edging up for the past eight or nine months and are running around 0.9% more than a year ago. Including deflation they are growing at around 0.2% to 0.4%.
But this has yet to translate to a sharp jump in the Nikkei in Tokyo – its up 9.7% in the past three months, but still down half a per cent since the start of the year. the shares are down 7% over the past year.
