Japan's below-par Q4 growth raises fears of a renewed slowdown

JAPAN's economic growth came in well below expectations in the final quarter of last year, going by data released yesterday.

This has reinforced fears of a renewed slowdown in the world's third-largest economy, even as other leading economies show signs of a pick-up in activity.

The rate of real or inflation-adjusted growth in the final quarter of 2013 was just 0.3 per cent; the market had expected it to be 0.7 per cent.

The annual rate of expansion, at one per cent, fell well short of the expected 2.5 per cent or more.

As reported in The Business Times yesterday, Prime Minister Shinzo Abe's administration has signalled its alarm that "Abenomics" may be losing some traction and begun preparing for measures to ward off a fresh slowdown.

Some steps could come as early as today, when the Policy Board of the Bank of Japan (BOJ) ends its latest monthly meeting.

Fresh monetary moves could include increased injections of cash into the Japanese banking system in a bid to spur lending and borrowing activity, analysts speculate.

Mr Abe yesterday put on a brave face in the wake of the disappointing fourth-quarter data, and said Abenomics had "helped boost the economy" since he took office in December 2012.

Minister for Economic and Fiscal Affairs Akira Amari noted that "the economy has been steadily picking up".

Yesterday's data showed that Japan's gross domestic product (GDP) grew at a real rate of 1.6 per cent last year, marking a second consecutive year of expansion.

However, the growth rate appears to be slackening, as the impact of the stimulus package wanes at a time when Mr Abe's promised structural economic reforms have not yet borne fruit.

Mr Amari promised yesterday that the government would "pursue swift and firm implementation" of its 5.5 trillion yen (S$68 billion) stimulus package, which involves cash payments to low-income earners and public works projects, including new infrastructure investments in the run-up to the 2020 Tokyo Olympics.

The Japanese economy's continued reliance on official stimulus is a concern for the International Monetary Fund (IMF).

The deputy director of the fund's Asia Department Jerry Schiff noted in Tokyo last week that Japan's recovery was still very much stimulus-driven and that the success of Abenomics was "not yet assured".

Despite warnings by the IMF and others that Japan's fiscal position is becoming more precarious, Mr Amari has said that the government could postpone a planned second hike in the consumption tax from 8 per cent to 10 per cent in October 2015 if consumer demand continues to be relatively weak. (The first hike, to take the tax rate from its current 5 per cent to 8 per cent, is to take place in April.)

Weak consumer demand makes it more likely that the BOJ will need to announce further monetary-easing measures today or at a later date, economists say; its governor Haruhiko Kuroda has signalled the central bank's willingness to take fresh steps if needed.

This in turn implies that the yen could weaken even further than the roughly 20 per cent it has dropped against the US dollar and the euro last year; it has also declined against major Asian currencies.

The Tokyo stock market reacted little yesterday to the latest GDP data, as investors digested the implications while waiting to see what steps, if any, the BOJ will take today.

Despite the weaker yen, growth in Japan's exports was sluggish in the final quarter of last year, especially to the US market; growth in exports to Asia increased, yesterday's data showed. Exports grew 0.4 per cent during the October-December period, after a 0.7 per cent fall in the preceding quarter.

Economic recovery last year was led by firm consumer spending, but consumer demand in the fourth quarter was weaker than what economists expected.

Household spending rose only 0.5 per cent on quarter, against an expected rise of 0.7 per cent, Kyodo news agency noted.

Consumption, accounting for around 60 per cent of GDP, rose a real 0.5 per cent, but this was due in part to a surge in demand ahead of the planned three-point sales tax hike in April.

Corporate capital spending rose 1.3 per cent, and housing investment, 4.2 per cent.

A critical factor for the continued success of Abenomics in the short term lies in the willingness of corporate Japan to raise wages - thus boosting consumption - in the upcoming "spring wage offensive", but so far, indications have not been positive in this regard.