The government of Japan, in a report released last week, left its assessment of the economy unchanged in May. The government report said that for the fifth consecutive month, Japan’s economy was recovering modestly despite the fact that the economy registered negative growth in the first quarter of this year.
The report also maintained its views on some of the key components of the economy such as private consumption and said that business investment was picking up while factory output was increasing at a moderate pace.
For the near term, the government maintained its outlook on the economy in a “recovery” mode as it said that the economy was supported by improvements in the labor markets and rising income conditions alongside the government efforts on fiscal spending.
The report reiterated the fact that the risks to the outlook came from the uncertainty in the global trade and overseas economy and the effects of fluctuations in the financial and capital markets globally.
Japan’s gross domestic production or GDP posted a contraction for the first time in the past nine quarters. Japan’s real GDP was seen to contract 0.2% in the first quarter ending March 2018, falling to an annualized GDP growth of just 0.6%. Factors such as severe weather conditions and higher fuel prices were seen hurting consumption leading to the decline in the GDP.
Japan’s cabinet office released its private consumption integrated estimates index which covers both the supply and demand side data. This index reported the first drop since the past two quarters, in Q1 of 2018. The index was down to 0.0% on the quarterly basis after rising 0.2% in the final quarter of 2017.
Motegi, Japan’s fiscal policy minister said in a statement that the GDP report from a few weeks ago reflected the third straight annual expansion in the economy in the fiscal year ending 2017 which was in March 2018. The GDP was seen growing 1.5% in the fiscal year of 2017 after rising 1.6% in the fiscal year ending 2016.
The GDP report showed that the total compensation of employees which comprises of gross salaries and other benefits rose 0.7% on a quarterly basis in the first three months of this year. This was after total compensation was seen falling 0.2% in the last quarter of 2017. This marked a year over year gains to 2.0% and was seen rising for the third consecutive year.
Speaking about inflation, the Japanese government said that consumer prices increased at a moderate pace in the recent months. This was an unchanged view from its previous assessment. In the month of March, the report had upgraded its outlook on inflation for the first time in nearly three years.
However, despite the unchanged outlook, most recent inflation data from Japan showed that the core consumer prices rose at a pace of 0.7% on an annualized basis in April 2018. The pace of increase had decelerated further from the previous months. This comes amid lower utility costs and the possibility that the Bank of Japan could eventually achieve the 2% inflation target in the next couple of years.
Underlying inflation which excludes fresh food and energy was seen rising at a pace of 0.4% in the year ending April 2018. This was a slower pace of increase compared to March’s increase in inflation at 0.5%. The increase in core CPI, in March 2018 was incidentally the largest gain since July of 2016.
Overall, the pace of the increase registered in the CPI was seen rising at a slower pace compared to the 1.0% increase in February which was attributed to the temporary factors that was responsible for pushing inflation higher.
