Renaissance for Japanese stocks?
Aug 16, 2012
Japan’s economic recovery, which follows last year’s earthquake and tsunami, “might be stalling”, says Hiroko Tabuchi in the International Herald Tribune. Second-quarter GDP figures, released on Monday, show that the Japanese economy grew at a slower-than-expected annualised rate of 1.4% between April and June. That was a sharp fall on revised figures for the first quarter, which showed a growth rate of 5.5%.
The positive impact of the public investment programme in Tohoku, the northeastern region of the island affected by the tsunami, was offset by a drop off in consumer spending. Slowing eurozone demand for Japanese goods, coupled with the persistent strength of the yen, also hit exports, which grew by 1.2% (annualised) from 3.4% in the first quarter.
It’s bad enough that growth came in below expectations. But worse still is the fact that what little growth was achieved is so dependent on public spending, notes Ben McLannahan in the Financial Times. During the second quarter, the investment programme was the economy’s main driver. However, growth is expected to slide further in the second half as government spending slows. In turn, “a slowdown in domestic demand... is inevitable”, according to Takeshi Yamaguchi at Morgan Stanley MUFG Securities.
Perhaps the “most worrying” figure, says McLannahan, was the 0.5% year-on-year drop in staff wages, suggesting that companies are “[squeezing] payrolls to offset weaker sales”. As Masamichi Adachi, an economist at JP Morgan in Tokyo, told the FT, incomes are not keeping up with growing economic activity. That means “the outlook for consumption is not good”.
However, “most damaging to Japan”, says Tabuchi in the International Herald Tribune, has been the slowdown elsewhere in Asia, which Japan has “increasingly looked to” to fuel growth. As Adachi notes, nearly all the July economic data released so far by Japan’s Asian neighbours have been “downbeat”.
It’s unlikely Japan will slip into recession, says Takashi Nakamichi in The Wall Street Journal. But the figures may put “additional pressure” on the government and central bank to ease monetary policy to support growth. As we’ve noted several times before, a weaker yen is one factor that might trigger a renaissance for currently cheap-looking Japanese stocks.
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