(Bloomberg) — Japan’s economy avoided falling into a recession at the end of last year, helped by robust spending by businesses, an outcome that improves the optics for the central bank as it mulls the timing of its first interest rate hike since 2007.
Gross domestic product expanded at an annualized pace of 0.4% in the final three months of last year, the Cabinet Office said Monday, reversing a 0.4% retreat initially reported. While the upwardly revised data point to more resilience in the economy than initially thought ahead of next week’s Bank of Japan policy meeting, the figures also showed that consumers are continuing to spend less in real terms as inflation weighs.
Economists had forecast the updated figures would show growth of 1.1%.
The yen and bond yields rose on notions that the BOJ is edging closer to ending the world’s last negative interest rate, with market expectations ramping up for a move as early as this month.
Monday’s data support the BOJ’s view that the economy continues to recover moderately with companies optimistic enough to bump up investment and workers’ pay. Corporate capital investment was revised to a 2% advance, powering growth last quarter. Consumer spending, on the other hand, was revised to show a slightly deeper decline at 0.3%.
The weak spending data probably won’t deter the BOJ from making a move, according to Takashi Miwa, senior economist at Nomura Securities Co.
“The BOJ’s outlook reports in October and January suggested that the bank wasn’t to too concerned about a decline in spending,” Miwa said. “The bank has consistently assessed that the virtuous cycle between wages and price is strengthening,” and the GDP data probably won’t change that view.
Nobuyasu Atago, chief economist at Rakuten Securities Economic Research Institute, said the figures were weaker than expected, with domestic demand hit by rising prices. Still, he expects the BOJ to make a policy move this month.
“If they don’t move in March even with strong results from the wage talks, that could send the yen lower and risk damaging consumers further with higher import costs,” Atago said. “It’s a big dilemma for the BOJ to wait until April.”
A majority of economists expects the BOJ to scrap the negative interest rate in March or April. Encouraging signs of wage growth this year have increased bets on the rate hike coming on March 19, when the bank concludes its next policy meeting.
Inflation has continued to outpace wage gains this year, putting a burden on household budgets and crimping outlays. Early data indicate the weakness is carrying over into 2024. Household spending declined by 6.3% in January from a year earlier, the biggest drop since February of 2021.
The yen initially extended gains after the data before retracing that move, while volatile overnight swaps that signal rate expectations showed a 65% change of the BOJ hiking in March, also largely unmoved. Yields on benchmark government bonds continued to rise.
The focus is now on annual pay negotiations between companies and labor unions, which will culminate with results from the biggest union group, Rengo, on March 15, the last business day before the BOJ starts its two-day gathering. The constituents of the union federation have demanded on average the biggest pay hike since 1993, at 5.85%, compared with demands for a 4.49% increase a year ago.
BOJ Governor Kazuo Ueda has repeatedly cited the importance of the wage negotiations as a catalyst for a virtuous wage-price cycle that would signal its price goal is achieved, and enable the bank to normalize its policy settings. Board member Hajime Takata said the price target is “finally” coming into sight, boosting market bets on a March move.
What Bloomberg Economics Says…
“All in all, the GDP report depicts an economy that’s probably not strong enough to convince the Bank of Japan that it’s safe to end its negative interest rate policy at next week’s meeting.”
— Taro Kimura, economist
For the full report, click here.
Prime Minister Fumio Kishida is monitoring trends in consumption and wages as a key to judging whether the country has finally overcome deflation. The premier reportedly plans to meet with business leaders and union leaders this week for a final push.
The approval rating for Kishida’s government fell 4.4 percentage points to a fresh low of 20.1% in a Kyodo News survey published Sunday.
The BOJ’s window for normalizing policy may not stay open for too much longer, Atago said. “The longer they wait, the harder it will become for them to end the negative rate.”
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
