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TOKYO – Japan has reported a startling economic recovery in the first three months of the year, but sunny numbers point to lingering weaknesses that threaten the country's prospects.
The Japanese economy, the world's third largest after the United States and China, recorded annualized growth of 2.1% in the first quarter of 2019, according to data released Monday by the Japanese Cabinet. Economists were expecting a contraction of the economy because of the weakening of Chinese demand, which is slowing down.
A closer reading of Japanese figures gave economists little reason to rejoice. Private consumption and exports decreased. Japan's surprise performance is largely due to the sharp drop in imports, which fell more dramatically than exports. This larger trade surplus has improved Japan's bottom line, even though it has shown that Japanese businesses and consumers are reluctant to spend.
"Low imports mean a weak domestic demand, this is certainly not a reason to rejoice," said Takuji Okubo, chief economist for Japan Macro Advisors, a research firm.
Surprise expansion occurs despite an increasingly dark global perspective. China, a major contributor to global growth, has been hit by its trade war with the United States and its efforts to contain its debt problems. Although China has taken steps to stimulate growth, further slowdowns could be felt in Asia and the rest of the world. Japanese companies in many sectors, especially those supplying unfinished components to Chinese manufacturers, have already made significant downward revisions to their profit forecasts.
The report offers a host of things to the country's prime minister, Shinzo Abe, who has made the revival of Japan's economy a central part of his appeal to voters. This figure could give him political cover to get his policy to the legislator, but that does not change Japan's difficult position.
"In terms of policy implications, apparently positive growth should not convince policymakers that everything is fine," Okubo said.
For decades, Japan has been striving to break the economic slump that began in the 1990s. Abe came to power in 2012, pledging to redress the situation by proposing a package of reforms. economic, known as Abenomics. These included loose monetary policy, significant government investment, and reforms of sclerotic social and commercial structures that hampered the country's economic performance.
Since then, Japan has experienced modest growth, with the exception of a brief recession in 2014 following the country's increased consumption tax. But much of this success coincided with China's remarkable economic growth.
Despite positive economic data, Abe's policies should face a difficult test now that Japan's neighbor is slowing down. He pledged to raise the country's consumption tax again in October, this time from 10% to 8%. He believes that this increase is necessary to reduce the country's huge debt and to fund ever-expanding social programs as the country's population ages. Japan's debt ratio is the highest in developed countries, with about two-and-a-half times its annual economic output.
Mr Abe has already delayed the lifting of the tax twice. His insistence to meet the October deadline has sparked the condemnation of the entire political spectrum, including members of his own party, who argue that lifting the tax now could drag the country into a recession. .
The Abe administration nevertheless said it would need an economic shock of the magnitude of the 2008 financial crisis to derail its plans.
Although Monday's report was mixed, the high figure could leave some room for Abe to negotiate with the United States on a trade deal between the two countries.
Trump arrives in Tokyo on Saturday to meet the new Japanese Emperor Naruhito. During the visit, he should meet with Mr. Abe. Both sides said they hoped to reach an agreement quickly.
But with Japan's upper house elections in July, Abe may be reluctant to make concessions to the US president that could be seen as likely to hurt Japan's economic situation.
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