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Yen And Yang

Posted August 16, 2023 at 11:45 am

What’s going on?

Data out on Tuesday showed that Japan’s economy outstripped expectations last quarter, with exports balancing out weak domestic demand.

What does this mean?

Japan’s economy dazzled last quarter, boasting 6% annualized growth –  its strongest showing since late 2020. And that wasn’t just a minor win for the country: it was actually double what analysts had on their charts. Exports did a lot of the heavy lifting there, with auto shipments to the US and Europe taking the lead. And the limping Japanese yen, near its weakest in decades, meant those takings packed an even bigger punch when brought home. Tourism made a comeback too, recapturing over two-thirds of its pre-pandemic buzz. But not everything’s in full bloom: domestic consumption, which forms the heart of Japan’s economy, took a 0.5% hit. That comes as businesses and consumers alike are tightening their belts, now that the ghost of inflation, after years of no-shows, is spooking spenders.

Why should I care?

The bigger picture: Leaning on friends.

While Japan’s recent economic glow-up is commendable, it’s mostly fueled by external demand. And that’s a little bit risky, given that Western economies – which drove a lot of this growth – are facing their own set of challenges at the moment. At any rate, economists think this export-driven momentum might not last – and if they’re right, Japan could find itself in a tricky spot. Given that backdrop, it’s unlikely we’ll see the central bank pulling back on its hefty stimulus measures anytime soon, as some were speculating.

Zooming out: Peas in a pod.

Japan isn’t alone in its domestic demand dilemma. After all, China’s recent data revealed a similar problem, with retail sales growing surprisingly slowly in July. But China’s already making moves: on Tuesday its central bank made the biggest cut to a key interest rate since 2020, in a bid to give the economy the boost it clearly needs.

Originally Posted August 15, 2023 – Yen And Yang

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