Japanese economy posts longest expansion in more than a decade

Japanese economy posts longest expansion in more than a decade

Japanese economic growth soared in the three months to June, logging the fastest increase in more than two years.

Japan's second-quarter gross domestic product (GDP) data put the nation in an unexpected spot: at the top of the growth table among Group of Seven (G-7) advanced economies.

Compared to the previous quarter, Japan's GDP in April-June increased by 1% against an expected rise of 0.6%.

Japan's real GDP grew by a seasonally adjusted 1% quarter-on-quarter or 4% annualized during Q2, significantly beating consensus which was calling for growth of 2.5%.

Figures published by the Japanese government today pointed to the sixth consecutive quarter of GDP growth, a positive streak last experienced from early 2005 to mid-2006.

Private consumption increased by 0.9 %, more than double the rise of 0.4% in Q1.

"The engines of consumer spending and capital expenditure both fired well in the second quarter, and that's why domestic demand was so strong", said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

Exports fell 0.5% quarter-on-quarter for the first contraction in four quarters, while imports climbed 1.4%, the office said. And overseas demand - which led the economy's growth until the previous quarter - is confronted with various risk factors, ranging from the ongoing confusion caused by the US administration of President Donald Trump, tensions in Northeast Asia over North Korea's ballistic missile and nuclear weapons programs and concerns over the collapse of bubbles in the Chinese economy.

Domestic demand should have the potential to pick up further in 2H17, thanks to the improvement in the labour market, Olympics-related construction demand, and modest rebound in credit growth.

Private inventories didn't contribute to GDP.

"If you ask me whether private consumption has fully recovered, I would say it still lacks strength in some areas, which will need to be followed with policy", Motegi said. Behind the uncertainty over the course of consumer spending is stagnant growth in wages even as labor demand is the tightest in more than 40 years. The fall in net exports pulled headline growth down by 0.3 percentage points.

While growth was faster than expected, it is not expected to nudge the Bank of Japan into dismantling its massive stimulus programme any time soon, as inflation remains stubbornly weak. Business spending advanced 2.4 per cent.

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