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Economy

Japan still firmly on growth track

Fiscal 2017 reading seen near 2% as consumption, investment take center stage

Labor shortages have made Japanese companies more willing to invest in new technology.

TOKYO -- The Japanese economy looks set to continue growing solidly in the coming months as households and businesses loosen their purse strings, extending one of the longest expansions in the postwar era.

Spotlight on domestic demand

Real gross domestic product rose an annualized 4% in the three months through June, marking a sixth consecutive quarter of growth, Cabinet Office data released Monday shows. Exports took a back seat to domestic demand, with a tight job market driving employers to shell out for labor-saving technology and encouraging consumers to spend more on such indulgences as eating out.

The expansion looks likely to continue this quarter and beyond. Even foreign demand, which flagged last quarter, is widely expected to pick up.

"Exports will accelerate again in real terms, then remain elevated for a while," predicted Takashi Miwa, chief economist for Japan at Nomura Securities.

Semiconductors are likely to play a significant role as the steady upward march of smartphone capabilities feeds global demand for chips. Inventories at electronic parts and device manufacturers, a category that includes chipmakers, hit their lowest level since the October-December period of 2009 last quarter, indicating ample room to increase production. This should give chipmaking equipment makers a steady flow of business.

On the consumer side, purchases of such durable goods as cars and appliances will likely underpin growth as households look to replace items bought during the economic stimulus implemented after the global financial crisis of nearly a decade ago.

The benefits of low crude oil prices are being felt more widely as well. Gasoline is cheaper now in such areas as Tokyo than it was during the Golden Week spring holiday period. Airlines also cut fuel surcharges on tickets starting this month. Seats booked on international routes over the Bon summer festival, running from Aug. 10 to Aug. 20, climbed 7% on the year on the back of Asian flights.

A recovery with legs

The average forecast of 15 private-sector economists put real GDP growth at 1.8% for the fiscal year ending March 2018. This would be the fastest since fiscal 2013 -- when growth hit 2.6% as demand spiked ahead of the April 2014 consumption tax hike -- and not far off the government's 2% goal.

The economists expect a slowdown in the July-September quarter, for which the average forecast clocked in at an annualized 0.3%, followed by a rebound to around 1% in October-December and beyond. Since this outpaces Japan's potential growth rate, the expansion should gradually put upward pressure on prices.

All 15 economists see the current recovery that began in December 2012 continuing through at least this fiscal year, with nine expecting it to run through fiscal 2020 or beyond. Continuing through next month would make the expansion Japan's second-longest since World War II, surpassing a boom that ran from November 1965 to July 1970.

But risks still loom over the economy, with the possibility of sluggish wage growth standing out as a particular concern. "Even if businesses respond to labor shortages by raising wages, if they look to hold down costs -- such as by reducing overtime -- growth in employee compensation and consumer spending will slow," warned Mitsumaru Kumagai of the Daiwa Institute of Research.

There are also worrying signs for the exports that had largely sustained the recovery until recently. "Growth will slacken in China after the Communist Party congress in the fall, and the sense of stagnation in the global economy will strengthen," argued Toru Suehiro of Mizuho Securities.

Such geopolitical risks as tensions over North Korea may drive the yen higher against the dollar or otherwise rattle financial markets. This could dampen business and consumer confidence, dragging the economy down.

(Nikkei)

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