In the second quarter, economic activity accelerated in Japan. Compared to the previous quarter, the economy expanded by 1.5% and over a year, it grew by 2.1%. Good in absolute terms, these figures should not fully reassure the Tokyo authorities. And for good reason: the domestic market is struggling, falling by 0.3% compared to the previous quarter, weighed down in particular by the decline in household consumption expenditure (-0.4%). On the private demand front, only residential investment is doing well (+1.9%), but non-residential investment is at a standstill (0.0%).
So, where does Japanese growth come from?
The first comes from public spending. Public investment grew at a good pace (+1.2% compared to the previous quarter), and consumption also made a small contribution (+0.1%). Nevertheless, the most significant contribution to growth comes from foreign trade. There are exports, up 3.2%, but especially the sharp decline in imports (-4.3%). The latter is due to the fall in energy prices in 2023.
Having weighed down the Japanese trade balance throughout 2022, energy imports weighed a little less on the Japanese accounts in 2023, thanks to lower energy prices). This even briefly allowed the Japanese trade balance to return to green in June, decisively accelerating growth. These figures indicate that the world economy is third in a growth phase but on a weak basis.
In a country where public debt was already above 260% of GDP at the end of 2022, according to the Ministry of Finance, and interest rates are set to rise; it is difficult to imagine that the public sector can remain the main driver of domestic demand for a long time. In addition, the gains on the foreign trade front will be difficult to drag on when we know that energy prices have risen in recent months and that both the Western and Chinese markets are struggling.
Nevertheless, Japan keeps good assets amid reforms and competition thanks to a cheap yen.
We keep Japan in our portfolio.
