Japan's domestic demand growing sluggishly
The first positive growth in Japan’s gross domestic product since the consumption tax rate was raised in April last year was the result mainly of overseas demand, such as for automobiles in the United States.
Recovery of domestic demand still remains slow.
While overseas demand pushed up GDP in the October-December quarter of 2014, consumer spending, capital investment and other demand at home was weak, according to an interim report on economic growth released by the Cabinet Office on Monday.
Akira Amari, minister in charge of economic revitalisation, said at a press conference Monday, “Exports to the United States and China worked positively [for the GDP growth rate].”
Exports in the October-December quarter increased 2.7 per cent from the previous quarter. Net exports - export values minus import values - pushed up the GDP growth rate by 0.2 percentage point.
Exports of automobiles to the United States, where demand for goods has been on the rise due to the economic upturn, were brisk, and those of electronic parts to China, where the market size has been expanding, also increased.
Due to the yen’s depreciation, dollar-denominated profits from sales overseas yielded higher returns in yen after the currencies were exchanged. Partly because of that factor, Toyota Motor Corp. is predicted to renew its record-high profit when it settles accounts at the end of March 2015.
On the other hand, increases in domestic demand have been sluggish. Consumer spending in the quarter rose 0.3 per cent, but the rate of increase matched that for the July-September quarter in which unusual weather conditions negatively affected consumption.
As the negative impact of “recoil reductions”, declines in spending after last-minute buying before the consumption tax hike, had mostly disappeared, spending for durable goods, such as home electronics products, which consumers replace after long intervals, has been rising.
In Bic Camera Inc.’s Yurakucho store in Tokyo, an official of the company said, “The impact from the recoil reductions disappeared in autumn last year at the latest.”
However, households’ tendency to cut spending, on clothes and other daily necessities, has been deep-rooted.
Sales at department stores have been supported mainly by the affluent in urban areas and foreign tourists. An official at a major department store chain said, “Especially in provincial regions, improvement in consumer sentiment has been delayed.”
Capital investment by companies has also been sluggish. According to research by the Development Bank of Japan, conducted in summer last year, capital investment planned by major companies in fiscal 2014 was 15.1 per cent higher than in the previous fiscal year. The percentage was the highest in 24 years.
But actual investment has not increased. Koya Miyamae, an economist at SMBC Nikko Securities Inc., said, “Because recovery of consumption has been weak, companies have continued to maintain a cautious stance.”
Many market participants assume that mild positive growth will continue through the January-March quarter in 2015 and beyond.
Low crude oil prices are expected to provide a tailwind for the economy. If crude oil prices remain low, this will result in a fall in gasoline prices, which will in turn reduce the burden on companies and households.
Also, low oil prices will reduce material costs, and so company profits can be expected to rise.
According to an estimate by Mizuho Research Institute, a continuation of current crude oil prices and foreign exchange rates could push up the nation’s real GDP in fiscal 2015 by 6.5 trillion yen, or 1.2 per cent.
Higher wage hikes than those of last year are expected in this year’s shunto spring labor-management wage negotiations, which are also likely to prop up consumer spending. The negotiations will soon enter the full-fledged stage.
According to research by Teikoku Databank, 48.3 per cent of companies plan to implement wage hikes in fiscal 2015. The figure is 1.9 percentage points higher than in the previous fiscal year.
But future economic conditions of European countries, China and other countries are uncertain. It is possible that an increase in exports by Japanese companies may slow down. For this reason, it is difficult to predict the future.