Japan: Yen Decline Lifts Growth Expectations

Consensus Forecasts

The latest raft of data releases for the start of 2013 were a mixed bag for the economy. At the positive end, Q1 GDP (released after our deadline) came in at +0.9% (q-o-q). Elsewhere, industrial production edged up in Q1 as well, albeit at a moderate pace. On a y-o-y basis, however, a contraction of 6.1% (y-o-y) was registered, although this was an improvement on the already low -6.7% figure in Q4 2012. In q-o-q terms, production jumped out of negative territory, expanding by 1.9% in Q1 and offsetting the previous quarter’s 1.9% decline. Elsewhere, the labour market saw some improvement too. In March, the unemployment rate dropped to 4.1%, the lowest level in four years, down from January and February’s rates of 4.2% and 4.3%, respectively. On the negative side, new car registrations dropped in the first three months of 2013, falling by 14.9% (y-o-y) against the previous -6.1% figure recorded in Q4 2012. However, new auto registrations were much stronger in April, moving into positive terrain by +2.0% (y-o-y), which was a jump on the previous two months’ 15.6% and 12.2% contractions.

The latest core inflation index indicates that Prime Minister Shinzo Abe’s economic policies, aimed at tackling over a decade of stubborn deflation, have yet to bear fruit. Core inflation, which excludes fresh food, fell 0.5% (y-o-y) in March following a 0.3% drop in February, marking a fifth consecutive month of decline. Going forward, however, consumer prices are expected to edge up as the yen falls and energy prices increase. In fact, the Japanese yen recently broke through the ¥100/US$ barrier for the first time in over four years, making way for further yen softness which could help to boost inflation as well as benefit Japanese exporters.

You can download a sample of Consensus Forecasts G-7 and Western Europe at www.consensuseconomics.com.

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