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Our Blog

Japan struggling for traction

30 July 2015
The news is not so good in Japan where economic conditions remain more challenging.  The economy moved out of recession at the end of 2014 but has since struggled to build any meaningful momentum.  The weaker exchange rate is helping the external sector but domestic demand conditions remain weak.

March quarter GDP growth was stronger than expected but much of this was due to the strength of inventory investment which will likely impact negatively on production in the period ahead.

Japan industrial production
Annual % change

Source: METI, Markit

Consumer spending remains particularly underwhelming, especially in light of the recent strength in the labour market.  Spending has not yet recovered to the level that prevailed before the pre-tax increase inspired ‘rush demand’. 

On the inflation front, core inflation is barely positive and we see no significant upside in the near term.  In our view, the Bank of Japan (BoJ) continues to be over-optimistic in its expectation a 2% inflation target will be achieved.  We expect the BoJ will be forced to boost its efforts to ease financial conditions but the need for this will only become evident as inflation continues to undershoot their expectations.

Our view remains that progress on the ‘third arrow’ of Abenomics – the structural reform piece – remains sufficiently underdeveloped to allow any degree of confidence that the Japanese economy can achieve sustainably higher growth in order to achieve sustained inflation at 2% per annum. Significant regulatory and labour market reform is still required.
This blog post has been prepared to provide general information and does not constitute 'financial advice' for the purposes of the Financial Advisors Act 2008 (Act). An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.

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