NAGOYA, Japan — Japan on Monday reported that its economy had expanded by the smallest of margins in the second quarter. The country has been struggling to ignite growth after years of slumping wages and prices. The currency has shot up this year, hurting crucial export industries. It's the world's third-largest economy. So what does it mean when it grows only a fraction of a percent in one quarter?
What Happened?
Japan's gross domestic product barely budged in the quarter to June, increasing by 0.2 percent in annualized terms. But estimated growth for the first quarter was revised upward, to a robust 2 percent, meaning output has, on the whole, been better than average so far this year.
This isn't a new feeling for Japan: The country, with a shrinking work force and declining competitiveness in industries like electronics, has grown at an average rate of less than 1 percent for the past two decades.
Growth in the first three months of the year was faster than expected, with an expansion of 1.7 percent in annualized, price-adjusted terms. But in the months after that, slowing growth in China and Britain's vote to leave the European Union weighed on the economy, and investors flocked to the Japanese currency, causing it to gain strength — and sap momentum from the Japanese economy.
The Impact of the Yen
The data on Monday highlighted how the yen's recent rise has pinched growth in Japan. A strong yen hurts exports, the value of which fell by 5.9 percent in the latest quarter — the biggest drag on the economy.
Economists said the drop in exports was partly offset by consumer spending, which makes up the largest portion of economic activity and increased 0.6 percent.
"Net trade was much weaker than expected, but domestic demand was firmer," said Masamichi Adachi, an economist at JPMorgan Chase. He called the economy's overall performance in the quarter a "mixed bag."
Although the Bank of Japan introduced negative rates in January, investors' affection for the Japanese currency has scarcely been affected. The yield on 10-year government bonds has at times dipped into negative territory, which should in theory make holding yen less attractive. But investors appear to believe that alternatives are worse.
That belief was highlighted after the so-called Brexit vote, when the British currency plummeted. Holders of that currency sought safer options, including the yen, which rose sharply in response.
Continue reading the main story
No comments:
Post a Comment