Japan's economy running along on half-empty fuel tank
Bloomberg -- Feb 15
Japan's economy is cruising along, at least by its own recent standards, with real growth clocking in at 1 percent in 2016. It may have reached top speed.

Real gross domestic product expanded for a fourth consecutive quarter at the end of 2016, the best run in more than three years. A number of indicators are flashing green as global demand strengthens and last year's fiscal stimulus kicks in. Exports rose in December for the first time in more than a year, and in the fourth quarter industrial production gained the most in nearly three years.

"Japan is in the best position it's been in in four years," said Izumi Devalier, head of Japan economics at Bank of America Merrill Lynch, who expects a 1.5 percent expansion in real GDP this year--nearly twice the potential growth rate of 0.8 percent. Her forecast ranks the second-highest among those compiled by Bloomberg, behind JPMorgan's 1.6 percent. The median is for 1 percent growth.

The problem, though, is that near-term growth depends on external demand and fiscal stimulus, economists say, meaning the upside and growth horizon are limited. Japan also faces the risk that U.S. President Donald Trump's protectionist rhetoric is soon transformed into policy that disrupts global trade, while the effects of last year's stimulus are expected to fade by the second quarter of next year.

"Unless domestic private consumption picks up the economy is unlikely to gain traction," said Atsushi Takeda, an economist at Itochu Corp. in Tokyo.

A hit to exports would leave Japan's beleaguered consumers to pick up the slack, something they've shown little inclination to do since a sales-tax increase in early 2014. Wages are rising only slightly, even with the tightest labor market in decades.

News source: Bloomberg
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