Japanese economic growth surges on strong exports

Japan’s economic growth jumped at an annual pace of 6% in the April-June period, marking the third straight quarter of growth as exports and inbound tourism recovered.

Real gross domestic product, which measures the sum value of a nation’s products and services, grew 1.5% in the fiscal first quarter for the world’s third largest economy, the Cabinet Office said Tuesday.

The annualized pace shows what the growth would have been if what was marked during the quarter had continued for a year. The rate outpaced what analysts had forecast at 3.1% growth.

The latest quarter showed the strongest growth since October-December 2020, when Japan’s GDP grew 1.9% on-quarter, and 7.9% annualized rate.

Exports grew 3.2% in the three months through June, according to the government. Auto exports have grown lately, after a period in which they had stalled on the shortage of computer chips and other parts. Production was crimped because of social restrictions related to the COVID-19 pandemic.

Also contributing to quarterly growth was the return of tourism, as social restrictions eased, and borders opened to inbound travel. Tourism revenue contributes to export growth in such GDP data.

On the negative side, private consumption stalled, declining 0.5% compared to the previous quarter. Public demand, which includes government spending, rose 0.3%.

Some analysts think signs of recovery will prompt Japan’s central bank to take action on a policy change and move toward higher interest rates.

The Bank of Japan has taken a super-easy monetary policy for years, at zero or below-zero interest rates, to jumpstart an economy beset by deflation, the opposite of what the world is worried about lately, or inflation.

Deflation can be lethal, signaling stagnation. Japan has a shrinking population caused by an extremely low birth rate.

But recent data show the economy may be gradually picking up and wresting itself out of stagnation and deflation. Complicating matters is that high interest rates can make borrowing more expensive and contribute to a slowdown, just when the economy is starting to rebound.

“The data is likely to provide the Bank of Japan with more room for normalization, although the initial short-lived bounce in the Japanese yen seems to reflect some market expectations that patience from the central bank is still the likely stance,” said Yeap Jun Rong, market analyst at IG.