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By HaleStewart February 17, 2014 8:43 am
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Japanese GDP Disappoints; But Details Are More Nuanced

Yesterday, Japan printed a GDP Q/Q seasonally adjusted growth rate of 1%.  According to Bloomberg, the market had been expecting approximately a 2.8% increase, meaning this number was a disappointment.  However, a look at the details shows things aren't as bad as the headline number suggests.

Here is a table from the report:

On a seasonally adjusted basis, private demand increased .8%, which comes out to an annual rate of 3.2%.  And the various sub-components are also showing decent growth -- household consumption increased .5%, and residential investment increased 4.2%. 

While public demand did slow from the 1.6% increase the previous quarter, the .9% is hardly fatal. 

The real issue is the 3.5%  increase in imports and .4% increase in exports.  With the yen at a lower value relative to other currencies, we should be seeing a larger export growth number.  But while other economies are expanding, they're not doing so at a fast enough rate to really boost Japanese exports.  And the increase in imports is the result of increased energy imports and stronger consumer spending.  Energy demand is increasing, meaning the economy is expanding faster.  But as Japan is a net energy importer, faster growth means more imported energy, which subtracts from growth.  This is a rather unique double edged sword for the economy.  At the same time, increased consumer activity also means increased imports, which in the long-run is a net positive for the economy.

All is certainly not lost with the above numbers.  Ideally, we'd obviously like to see stronger numbers.  But the real problem here is two-fold: slower overseas growth for Japanese exports, which should be picking up in the near future, and increased imports.  This is less retractable problem.

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