Former Bank of Japan (BoJ) governor Masaaki Shirakawa recently stated that Japan will need to see annual productivity growth almost double from approximately 1 per cent growth since 2000 to offset the declining workforce.
Any hopes for an Abenomics-inspired growth rally are already beginning to fade, Standard Life Investments global strategy’s Govinda Finn said.
“Capex plans for fiscal year 2014 in the most recent BoJ Tankan survey were muted, while industrial production has already displayed signs of weakness,” Mr Finn said.
“This suggests that any business revival remains fragile,” he said.
“If business investment disappoints, it may be no surprise that growth will be again dependent on greater public investment.”
Data from Japan’s housing market also suggests a slowdown in residential investment, as the longer lead time for property construction means that the consumption tax has already begun to bite, Mr Finn said.
Stronger underlying consumption and private and public investment trends are likely to be offset by a number of less-favourable forces, he said.
“In particular, Japan’s trade balance remains troubling, having reached minus ¥1,714.2 billion in March on a seasonally-adjusted basis, its 37th consecutive month in the red.
“This is not simply an issue related to Japan’s expensive fuel imports; export volumes in March fell 2.5 per cent and there has been no meaningful improvement despite a nearly 20 per cent weakening of the yen on a real, trade-weighted basis.”
It will be a few months before the economy’s underlying strength becomes clearer, Mr Finn added.
