Rodrigo Duterte

Japan reconstruction spending boosts recovery but economy still fragile

Agence France-Presse
Japan's recovery has been largely driven by government reconstruction spending and analysts said weak demand in Europe and worries about growth in China could have an impact down the line

TOKYO, Japan – The economy of Japan grew faster than first thought between January and March, official data showed Friday, June 8, but analysts warned of a slowdown caused by a strong yen, Europe’s debt woes and weakness in China.

The Cabinet Office said gross domestic product grew by a revised 1.2% in the first quarter from the previous three months, up from a preliminary figure of 1% expansion.

On an annualized basis, the revised figure was 4.7% in the quarter, higher than a preliminary 4.1% rise, according to the data.

The figures are good news for an economy pounded by last year’s quake-tsunami disaster, reflecting an upward trend with domestic demand and auto exports on the rise.

However, the recovery has been largely driven by government reconstruction spending and analysts said weak demand in Europe and worries about growth in China could have an impact down the line.

That point was underscored by a finance ministry official on Friday who warned that strong yen and the financial crisis in Europe — a major market for Japanese goods — were serious threats to Japan’s export-oriented economy.

“As far as the short-term outlook for the export sector is concerned, the state of European economies and foreign exchange are sources of concern,” the official told reporters.

Exports took a hit as the yen struck record highs against the dollar late last year — and the unit remains strong — hurting manufacturers whose products become more expensive overseas on a strong currency.

Data Friday showed Japan’s April current account, the broadest measure of trade with the rest of the world, tumbled 21.2% on-year to a surplus of 333.8 billion yen ($4.2 billion), well below economists expectations for a 455.6 billion yen surplus.

But the measure remained in positive territory by a wide margin, aided by Japanese investment abroad and higher auto exports despite the nation’s soaring post-tsunami fuel costs.

“The latest data confirms that the current account surplus is on a gradually declining trend, even though the fall isn’t so precipitous as to make us worry about a fall into the red this year or next,” said Junko Nishioka, chief economist at RBS Securities Japan.

As Japanese companies shift production overseas due to the relatively strong yen, income has become a key factor in Japan’s current account surplus.

April exports rose, particularly in the auto sector, after year-earlier drops following the March 2011 disasters but imports also rose due to increasing costs of gas and other fossil fuels.

Japan has switched off its nuclear reactors following last year’s quake-tsunami induced atomic crisis, forcing the resource-poor nation to turn to pricey fossil-fuel alternatives.

The economy was also hit by severe flooding in Thailand in late 2011, disrupting global supply chains and the production capability of Japanese manufacturers, particularly electronics and automakers. – Agence France-Presse