Instant view: Japan’s economy grows but outlook unclear

TOKYO (BestGrowthStock) – Japan’s economy grew 1.2 percent in the first quarter, the most in three quarters, buoyed by exports to Asia and a stimulus-fueled rise in consumption, but analysts were wary over the outlook due to concerns about deflation and the impact of Europe’s financial woes.

COMMENTARY:

MASAMICHI ADACHI, SENIOR ECONOMIST, JPMORGAN SECURITIES JAPAN

“The economy is steadily recovering but is heavily dependent on exports. So a slowdown is inevitable unless domestic demand gains strength, as exports may be indirectly affected by debt problems in Europe which are certain to slow the region’s growth.

“The weakness in domestic consumption may become more visible as government stimulus will likely peter out toward the end of this year. In this regard, the Bank of Japan will need to keep the current easy stance intact.”

AYAKO SERA, MARKET STRATEGIST, SUMITOMO TRUST & BANKING

“It was largely within expectations and will not be a negative factor for the markets.

“While GDP grew from the previous quarter, the deflator figure shows there are still persistent deflationary pressures and keeps us cautious about whether growth will be sustainable in coming quarters.

“Concerns over Europe should not be a significant downside risk for Japan’s economy as long as the U.S. economy continues its mild recovery and Chinese demand remains healthy.”

YASUO YAMAMOTO, SENIOR ECONOMIST, MIZUHO RESEARCH INSTITUTE

“Consumption was lower than we expected, but the rest was in line with forecasts.

“Domestic demand is picking up. Incomes are rising, meaning we are seeing signs of a self-sustaining recovery. Before, demand was up because of policy measures like tax breaks on energy-efficient cars.

“Capital expenditure is also recovering to levels before the Lehman crisis. It’s not very strong but it is recovering.

“The risk is in exports. Incomes and operating rates are rising because of strong exports. If problems in the eurozone start to hurt overseas economies, then Japan will be affected. We probably won’t see U.S. or Chinese demand go down sharply unless there is a surprise event and investors flee from risk, but it is something to watch out for.”

AZUSA KATO, ECONOMIST, BNP PARIBAS, TOKYO

“The figures clearly indicate that the Japanese economy is recovering on the back of the expansion in exports, mainly to Asia.

“Capital investment is also on the increase, and we can see the economic recovery is being reflected in domestic demand.

“Japan should be able to avoid any large direct impact from the problems in Europe, in terms of exports, as the size of Japan’s exports to the region has become pretty small.

“As long as the Asian economy holds steady, some decline in exports to Europe won’t hurt very much, though it would be a different story if those problems started causing turmoil in financial markets and a plunge in European and U.S. stocks (Read more about the stock market today. ).

“But for now a bigger concern is that China might tighten policy too much, for example.”

HIDEO KUMANO, CHIEF ECONOMIST, DAI-ICHI LIFE RESEARCH INSTITUTE

“The figures clearly showed that exports led the growth which gradually affected internal demand. I think this improvement of internal demand will sustain growth for a while.

“But if the European turmoil prompts the stock market to drop, it may have a negative impact on sustainable growth as people holding assets may not buy things.”

Investment Advice

Instant view: Japan’s economy grows but outlook unclear