Japanese Q2 Growth Figures Disappoint Analysts

By: Dr. Mike Campbell

Data just released from Japan show that the world’s second largest economy managed an anaemic 0.1% growth in the second quarter. The figure was much poorer than expected and probably already shows that the higher Yen is having an influence on the competitiveness of Japan’s exports. By comparison, Q2 data from Germany and America look positively buoyant against the Japanese figures; at 2.2 and 2.4% respectively. The response of the Japanese stock market was muted; the Nikkei closed down by 0.6% on the news.

It is likely that China will have overtaken Japan as the world’s second largest economy when full year data becomes available in January 2011. Data from the World Bank show that the Japanese economy grew by 5% between 2000 and 2005 whereas China’s economy increased by 261% during the same period.

Japan’s consumer spending has remained muted, dampening demand and job creation prospects within the home market, and making the country even more sensitive to the negative consequences of an appreciating currency. The Yen is trading near to a 15 year high against the US Dollar which is significant because America is Japan’s major trading partner. There is increasing speculation that Japan will act to try to devalue the Yen, restoring a competitive edge to its exports. There is concern being expressed that Japan could even slip back into recession in the final two quarters of the year as the impact of the strong Yen becomes more keenly felt in the export data.

Japan also has very substantial debt problem with its debt currently running at twice its GDP; making it the worst debt crisis amongst any developed economies. Much of the debt has been financed through the investment of domestic savings in Japanese debt vehicles, but the yields on these are relatively meagre.