TOKYO -- Japan's economic recovery has been hesitant in large part due to a slowdown in China's economy. Not only is the situation weighing on Japanese exports, it is creating market volatility around the world.
But not all is gloomy for Japan. Capital spending and personal consumption have started showing signs of an uptick, buoyed by Japanese companies' strong earnings and people's improving incomes.
It is between these two walls that the Japanese economy finds itself bouncing back and forth as it aspires to gain a solid upward trajectory.
Back to China. An executive of Volkswagen Group China checks share prices on his smartphone every day, hoping that the company's stock does not fall any further. "Our sales have dropped by 40% since mid-June, when stock prices started accelerating their fall," a sales representative at a Volkswagen dealership in Beijing said.
China is no different than anywhere else. Chinese who own stock and real estate often boost their spending when the prices of these kinds of assets go up. When equities slide, the Chinese who hold them immediately tighten their purse strings.
The Chinese economy has been showing signs of sputtering recently, and it is having an impact in Japan.
In May, Japanese carmaker Fuji Heavy Industries' exports to China dropped 50% on the year as it adjusted its inventory, although its sales in China have not taken that big of a hit. At Nissan Motor, Chief Competitive Officer Hiroto Saikawa said, "Sales growth of our premium cars may slow" due to falling Chinese share prices.
Takashimaya, one of Japan's big department store operators, has seen its duty-free sales jump 200% so far this year thanks to a sharp rise in the number of foreign tourists, including those from China. "We don't think our sales will be affected [by the slowing Chinese economy] anytime soon," a Takashimaya representative said. "But we will closely watch developments in the mid- to long term."
Japan's government, though, is raising concern that another plunge in Chinese stock prices could slow the flow of Chinese tourists and their money to Japan.
There are uncertainties in Europe as well, even though the European Union looks to have reached an agreement with Greece to keep the broke Mediterranean country in the eurozone.
On the New York Mercantile Exchange, platinum future prices have fallen by nearly 20% from where they were at the start of the year. In Europe, the precious metal is used as a catalyst in purifying the exhaust from diesel-powered vehicles. So take the falling price of platinum as evidence that new car sales in Europe are trending down.
Even though overseas demand is weakening, economists widely believe Japan remains on a recovery path. You already know why -- capital spending and personal consumption at home.
Sony plans to double its capital investment to 510 billion yen ($4.11 billion) in the year through March. The company will channel this money to its image sensor and device units. "We will aggressively invest in our areas of strength," Sony President Kazuo Hirai said.
Taken together, big Japanese manufacturers will increase their capital investments by 18.7% in fiscal 2015, according to the Bank of Japan's quarterly survey of business sentiment for June.
Amid the economic concerns in China, growth in the U.S. and Japan will be key to the recovery picking up its pace.
Indeed, the U.S. economy is beginning to recover from from the negative growth it posted in the January to March quarter.
The U.S. Restaurant Performance Index -- a monthly composite index that tracks sales and customer traffic at 400 American restaurant chain operators -- has been on the increase ever since 2010, when it crossed the expansion-contraction threshold of 100.
Ford Motor has taken steps, including shortening summer vacations, to boost production and meet robust domestic demand.
Federal Reserve Chair Janet Yellen is even looking to raise interest rates by the end of the year to keep the U.S. economy from overheating.
Yet this is exactly where the ride could get bumpy. U.S. sales of automobiles and other durables have been largely supported by historically low interest rates. Yellen's expected move could take away the economy's spark.