Back to black: Japan economy rebounds after first dip in 2 years

Breaking News August 10, 2018 08:51

By Agence France-Presse
Tokyo

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Japan bounced back to growth following its first contraction in two years, official figures showed Friday, but fears of US trade wars clouded the outlook for the world's third-largest economy.



The economy grew 0.5 percent quarter-on-quarter in the April-June period, compared with a 0.2-percent decline in January-March, according to data from the Cabinet Office.

The growth figure -- annualised at 1.9 percent -- was better than analysts had expected, beating a market consensus of 0.3 percent growth compiled by Bloomberg News.

The data represented a quick turnaround after a series of eight consecutive quarters of growth ended in January-March, interrupting a winning streak not seen since the heady days of Japan's "miracle" boom of the 1980s.

"The Japanese economy staged an ideal rebound, partly backed by robust corporate activities," Hideo Kumano, chief economist at Dai-ichi Life Research Institute, told AFP.

But analysts warned US-led trade wars could be a major risk factor for an economy still struggling to win a long battle against deflation.

US President Donald Trump has unsettled rivals and allies alike with harsh trade rhetoric and a raft of tariffs that have affected sectors ranging from agriculture to automobiles.

Trump's threat to impose stiff tariffs on vehicles imported into the world's number-two car market remains a concern for Japanese automakers.

"Concerns over the potential auto tariffs can't be ignored," said Japan Research Institute economist Yusuke Shimoda.

"Since the automakers have vast supporting industries, the impact of the tariffs would spread widely," Shimoda told AFP.

Kentaro Arita, senior economist at Mizuho Research Institute, estimated the US tariffs could cost Japan's auto industry as much as $10 billion.

And threatened auto tariffs could deal a blow to the vaunted "Abenomics" policies of Prime Minister Shinzo Abe, who is aiming to secure his premiership by winning his party's presidential election in September.

'Heavy rain'

Abe launched the pro-spending "Abenomics" policy blitz when taking office in late 2012, combining ultra-loose monetary policy and fiscal stimulus in a bid to pep up the former Asian economic powerhouse.

But consumer spending has remained stubbornly lacklustre, with companies still stingy on wage hikes despite healthy profits.

In late July, the Bank of Japan revised down its inflation forecasts, making minor tweaks to a monetary policy that has so far failed to lift prices.

According to Friday's data, private consumption -- which accounts for some 60 percent of Japan's GDP -- rose 0.7 percent, recovering from a 0.2-percent decline in the first quarter.

Business investment jumped 1.3 percent following a 0.5-percent gain in the previous quarter, thanks partly to booming construction ahead of the Tokyo 2020 Olympics.

But analysts also warned of risks related to record downpours in western Japan last month, which killed more than 200 people and devastated local economies.

"The impact of the heavy rain may be visible for the July-September period, which would weigh on the economy," said economist Kumano.

Among other risk factors is the impact of a deadly record heatwave that claimed 124 lives last month.

"Usually, a hot summer is a positive factor but it's too hot this year and that may affect economic activities negatively," Japan Research's Shimoda said.

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