International | Jan 12 2007
By Chris Shaw
A very poor consumption result for the September quarter sparked fears the Japanese economy could slide back into recession, but Macquarie suggests such an outcome is unlikely as the upcoming figures for the December quarter should show a reversal of the third quarter weakness.
The broker notes the recent GDP figures have shown significant volatility, with the 0.8% increase in September impacted by a sharp fall in consumption as household savings recorded the strongest gain on record. Consumer spending is estimated to account for as much as 57% of Japan’s GDP, so any large changes have a significant impact on the economy’s overall growth rate.
This took 2.1% off the GDP figure and made the state of the economy appear more perilous than is actually the case, a situation Macquarie expects will be reversed with the December result. Such a view fits in with that of finance minister Koji Omi, who said the economic recovery was likely to strengthen over the course of the year.
Komi also sees consumption increasing in the December quarter, pointing to a slight increase in wages as being supportive of such an outcome. This would give growth a boost as it fits in well with Macquarie’s view other sectors of the economy are performing well, with exports still solid and the domestic recovery still strong.
The broker suggests with a strong 4Q GDP figure likely there is a chance the Bank of Japan (BoJ) may hold off on increasing interest rates until next month, rather than lifting the official rate at next week’s meeting as the strong growth figure would give added justification to a tightening of rates.
Credit Suisse is not so sure though, as based on contracts for the exchange of interest payments the broker estimates there is a 73% chance the BoJ lifts rates this month.
