Are Japanese prime minister Shinzo Abe’s attempts to revive the Japanese economy failing? Recent data have been “mixed at best”, says the Financial Times. Japan’s GDP shrank by 1.7% between April and June as a new consumption tax hit spending. the economy appears to be stagnating – casting doubt on hopes for a third-quarter rebound. Industrial production edged up by 0.2% in July, not enough to reverse a 3.4% plunge the month before. Retail sales fell by 0.5% in July, the first fall since April.
Meanwhile, the job-to-applicant ratio, a gauge of labour-market tightness, remained unchanged in July, the first time since the launch of ‘Abenomics’ that it has failed to improve. And core inflation, which strips out fresh food prices, fell slightly to 1.3%.
Even so, it would be wrong to write off Abenomics, as the FT points out. The goal is to improve Japan’s growth potential, and reach 2% inflation.
Structural changes (such as measures to make labour markets more flexible) will take time to have an impact, and the Bank of Japan has signalled it will print more money if need be. That’s likely to be necessary, reckons Capital Economics – the consultancy predicts further QE early next year.
As we’ve often noted, money-printing in the form of QE has proved good news for equities in the past, and it is also likely to weaken the yen, further boosting Japan’s export earnings. It also bodes well that more than 40% of listed companies in Japan look cheap, on a price-to-book ratio of between 0.5 and 1, says PFP Wealth Management’s Tim Price.