Just when we thought that today would be about the French vote of confidence Japan has rather stepped forward. Along the way it has confirmed one of my themes as it received some better economic news.
Japan’s economy expanded in the three months through June, the government confirmed in a revised report, as data for private consumption were revised higher.
Gross domestic product grew at an annualized pace of 2.2% last quarter, the Cabinet Office said Monday. That exceeded the initial estimate of a 1.0% expansion. The median forecast among analysts had called for no change from the preliminary reading. ( Bloomberg)
Actually some had thought that Japan was in a recession.
Recent economic indicators suggest that Japan might already be in recession, according to a think tank report released last week, as wages remain stagnant and consumer sentiment weak.
Gross domestic product (GDP) may have contracted 0.2% in the April-June quarter on an annualized basis adjusted for inflation, Mizuho Research & Technologies said in the report. ( The Japan Times)
Plus the reason they thought there was a recession was the exact opposite of the official report.
“Given consumer sentiment and wage trends, it’s likely that consumption remained weak and dragged down the overall economy,” said Saisuke Sakai, chief economist at Mizuho Research & Technologies, who wrote the report.
So after the fall in the opening quarter of 2025 they were expecting a recession. In fact Japan has seen quite a consumption driven upgrade giving it some welcome news. It brings my theme of its GDP series being particularly volatile and prone to significant revisions into play in two contexts. Firstly the large revision itself catching the forecasts on the hope. Secondly the whole official move as opposed to some even thinking we would see a decline. In terms of economic theory I suspect it is partly due to their use of the expenditure version of GDP that this happens.
We can also get a read through into a glimpse of GDP per capita or per person via news like this. From the BBC on the 7th of August.
Almost a million more deaths than births were recorded in Japan last year, representing the steepest annual population decline since government surveys began in 1968…….>New data released on Wednesday by the Ministry of Internal Affairs and Communications showed the number of Japanese nationals fell by 908,574 in 2024.Japan recorded 686,061 births – the lowest number since records began in 1899 – while nearly 1.6 million people died, meaning for every baby born, more than two people died.
We can bring that back to per capita GDP to some extent if we note this bit.
The overall population of the country declined by 0.44 percent from 2023 to about 124.3 million at the start of the year.
So a that rate we are getting a 0.1% boost to per capita GDP per quarter via a shrinking population.Also let me add something else as this trend in Japan is more green than the policies we see officially approved around the world. What I mean by that is that the persistent fall in its population will be bringing it back towards the natural resources Japan has and yet official policy is for immigration.
Another Prime Minister Departs
Over the years the Japanese Prime Minister has mostly been a rather temporary appointment although Abe-san bucked that trend. But there is a link to per capita GDP here too as official policy is like pretty much every establishment I look at for more immigration. The official view is that this boosts economic output except as we have seen in so many places ( off the top of mt head Australia, Canada and the UK) we then see per capita GDP fall.
Another issue here with the unpopularity of Ishiba-san has been the persistence of inflation and the reality that real wages have continued to fall when the Bank of Japan has received its magic bullet of higher inflation. Remember it was supposed to fix The Lost Decade problem.
However there is a contradiction between those two themes if we look at the present front-runner and her policies. From CNBC.
Takaichi is an “apostle of Abenomics”, according to Eurasia Group, a reference to the economic policies of Abe, which espoused large-scale monetary policy easing, fiscal spending and structural reforms.
“Investors will closely watch Takaichi’s electoral prospects because of her previous pointed criticism of the Bank of Japan’s plans to raise interest rates, and her support for larger fiscal stimulus,” the note added.
Regular readers will see why that rather leapt off the page/screen at me.I have been arguing for a couple of years now that the Japanese establishment has no interest in raising interest-rates and the minor moves we have seen to 0.5% show that if for example we compare it to an inflation rate above 3%. Also you may note the likelihood of yet another fiscal stimulus. Along the way we can note the possibility of Japan getting its first female Prime Minister. That is significant for a society that has elements of male domination. But it is not that simple as remember if is “Mrs Watanabe” who runs the money.
Bond Yields are a problem
The underlying issue here is that bond markets have ignored the reticence on the issue of official interest-rates and marked bond yields up sharply. If we look at the 30-year yield much more sharply and that rose by 0.04% to 3.27% today. That is a relative shift higher as other bond yields fell as last week ended following weak economic data in the United States.
Let me take that further as concerns over perhaps lower official interest-rates can meet higher bond yields these days and in this case have.One factor here is the change in policy from The Tokyo Whale.
It’s a brave new world for Japan. The Bank of Japan’s holdings of government bonds are shrinking on a net basis (blue). The BoJ is still a gross buyer – without this Japanese yields would explode MUCH higher – but this gives you an idea why long-term JGB yields are up so much… ( Robin Brooks)
Remember elsewhere we are seeing central banks reducing holdings in every sense whereas the Bank of Japan is merely buying less. Now if we add in yet another fiscal splurge how does that work? Those that are now buying such as banks and pension funds will presumably want even higher yields in return.
Abenomics was however rather good for the stock market.
The Nikkei 225 Index climbed 1.1% to above 43,500 while the broader Topix Index gained 0.7% to 3,127 on Monday, with Japanese shares edging closer to record highs ( Trading Economics)
Comment
We see that whilst Japan has received some better news from the GDP release earlier there are quite a few underlying problems.Demographics, inflation and these days debt costs to which we can add a central bank holding 570 trillion Yen of government bonds in what has become a bear market for them.Is the plan to return to negative interest-rates to allow The Tokyo Whale to buy even more government bonds and reinstate yield curve control? If so what will the Japanese Yen do? Especially as it starts from a weak position at just under 148 versus the US Dollar and just under 200 versus the UK Pound £. Another burst of the Carry Trade would rather put the skids under it…..
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