Japan limps out of recession

The Japanese economy grew by 0.6% in the fourth quarter of 2014, an unexpectedly slow recovery from the recession induced by a consumption-tax hike in April. The annualised growth rate was 2.2%. While exports looked solid, gaining 2.7%, private consumption expanded by only 0.3%.

Household spending is 3.4% down on a year ago. Industrial production is also weak. The Nikkei 225 index nonetheless climbed to an eight-year high above 18,000.

What the commentators said

This year’s wage negotiations, now underway between unions and the biggest firms, will set the tone for private consumption going forward, said Aaron Back in The Wall Street Journal. The talks cover a fifth of the workforce, and set the benchmark for the rest.

The government and the central bank are “openly pushing companies to be more generous”. The labour market is tight, with the ratio of job openings to applicants at a 23-year high. Barclays is pencilling average pay rises of 2.4%, compared to 2.2% last year.

Even if wages rise, the Bank of Japan seems likely to step up its quantitative-easing measures. The big drop in oil is pushing down prices, with core inflation (inflation minus food) threatening to fall below zero by the summer, as the FT’s Lex pointed out. The Bank of Japan’s inflation target is 2%.

It wants to combat the “deflationary mindset”, whereby the private sector tends to hold back on investment or spending, by raising inflation expectations. More money printing portends further falls in the yen and increases in the stockmarket.

So the economy will now either “start walking on its own two feet”, said Back, “or it will get another helping hand”. Either way, “holders of Japanese stocks should benefit”.

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