Japan: Momentum continues to build

by: Peter de Bruin

Strongest performance among G7 economies

Following two quarters of contraction, Japan’s economy grew by 1.2% qoq saar in the fourth quarter of last year, while the economy continued to pick up momentum in the first quarter, expanding by 4.1%. This easily made Japan the best performer amongst G7 economies. One important factor behind the impressive upswing is that households have started to spend more, with consumption rising by 1.6% in Q4 and 3.6% in Q1. Consumption has been bolstered by sharp increases in equity markets, as investors became more optimistic on the economic outlook due to the prospects of aggressive fiscal and monetary stimulus. Indeed, despite having given back some of its gains lately, the Nikkei index is still up by around 50% since November of last year. Consumption should continue to grow robustly during 2013 and the first quarter of 2014 as wealth gains continue to support spending, while households will also frontload their expenditures ahead of the VAT hike in April 2014.