Japan logs fourth consecutive quarter of economic growth against the odds

The Japanese economy grew by one percent in 2016, despite a slower final quarter limiting the impressive rise

 
Japanese cars have retained their global popularity, boosting the Japanese export economy
Japanese cars have retained their global popularity, boosting the Japanese export economy 
Author: Emily Cashen
February 13, 2017

New figures show that Japan’s economy experienced modest growth in 2016, expanding by one percent as a weakened yen boosted government spending, exports and private non-residential investment.

Despite weakened fourth-quarter performance, which saw growth in the world’s third-largest economy slow to just 0.2 percent, down from a high of 0.6 percent in the first quarter of 2016, the past twelve months have marked Japan’s longest period of continuous growth in three years. The nation has not achieved four straight quarters of expansion since 2012-2013, with 2016’s modest growth therefore suggesting that Japan’s economy is back on track.

While domestic spending flatlined in 2016, external demand for Japanese goods has significantly boosted growth. Strong global demand for Japanese cars, computer technology and chemicals saw the nation’s exports rise by 2.6 percent in 2016, which was bolstered further by increased shipments to China and the US. Japan’s exports ultimately accounted for around half of the expansion in the nation’s GDP over the past 12 months.

With exports proving to be the single largest driver of the nation’s economy, Japanese concerns over a rise in US protectionism look set to intensify. The US is Japan’s biggest export market after China, leaving the nation vulnerable to changes in external trade policies. In January, President Trump launched his ‘America First’ economic campaign by signing an executive order to pull the US out of the Trans-Pacific Partnership – a trade deal wholeheartedly backed by Japan.

While domestic spending flatlined in 2016, external demand for Japanese goods has significantly boosted growth

Following Trump’s shock election victory, the Japanese yen weakened considerably against the dollar, trading at nearly 120 yen, as opposed to its previous levels of around 105 yen. During his Presidential campaign, Trump criticised the US’ trade deficit with Japan, which he largely blamed on Japanese trade policies.

On February 11, Japanese Prime Minister Shinzo Abe arrived in the US for his first diplomatic meeting with the new President, hoping to ease growing trade tensions with the Trump administration. The two-day summit proved positive for Abe, with Trump reiterating the importance of a US-Japan alliance, particularly in regard to tackling North Korea and its ongoing nuclear ambitions.

While this initial meeting may temporarily ease concerns over Trump’s protectionist policies, Japan’s growing reliance on US trade suggests that the nation’s future growth could largely depend on fostering continued friendly relations with the new leader.