Japanese Prime Minister Shinzo Abe’s election hopes look to have received a boost with the release of a slew of positive economic data.
First, the good news for Mr Abe, who is looking to the success of his trademark Abenomics policy to help him win a third term in power.
Unemployment last month stood at 2.8 per cent, a 20-year low. Factory output data, seen as an indicator of economic health, grew 2.1 per cent after a 0.8 per cent drop in July.
Moody’s Analytics economist Faraz Syed, who studies Japan’s economy, said the first two “arrows” of Abenomics – monetary and fiscal stimulus – have helped Japan stave off deflation.
But he also noted progress has been slow on the third arrow, structural reforms, arguably the most important for long-term growth.
This will give Mr Abe’s key rival, Tokyo Governor Yuriko Koike, who just launched a new opposition party, Kibo No To (Party Of Hope), this week, plenty of ammunition as the pace of inflation stays sluggish.
“Reforms” has become one of the buzzwords going into the snap election to be held on Oct 22, as Mr Abe touts his Abenomics policy as a “work in progress” while Ms Koike criticises it for “failing to produce a feeling of hope”.
Key economic data
Jobs: Jobless rate held steady at 2.8 per cent last month, the lowest since 1994. Job availability rate is at its highest since February 1974, at 1.52, or 152 jobs for every 100 applicants.
Average household spending: Up 0.6 per cent last month, driven by food, transport and communication.
Factory output: Up 2.1 per cent last month from July owing to a rebound in production of semi-conductor manufacturing equipment, industrial robots and car parts.
Inflation: Gained 0.7 per cent last month over the same month last year in the eighth straight month of increment and highest in over two years.
Wage growth: Total cash earnings fell 0.3 per cent in July from a year earlier in the first drop in 14 months.
Economy: Gained 2.5 per cent in the second quarter year on year, and 0.6 per cent over the previous quarter. This marked the sixth straight quarter of growth in the longest economic expansion in more than a decade.
Indeed, the economic growth has not been uniform – inflation remains sluggish at 0.7 per cent, way below the central bank’s target of 2 per cent. Inconsistent wage growth has resulted in mixed household spending data.
But structural reforms, said Economic Intelligence Unit’s Japan analyst, Ms Agathe L’Homme, will have to “soften the impact of ageing demographics and change dramatically public sentiment towards an optimistic view of the economy”.
Reforms” has become one of the buzzwords going into the snap election to be held on Oct 22, as Mr Abe touts his Abenomics policy as a “work in progress” while Ms Koike criticises it for “failing to produce a feeling of hope.
“That’s a rather tall order.”
Here lie the woes in firing up the world’s third-largest economy, which for years had struggled with tepid growth.
The current strength of its recovery, Mizuho Research Institute senior economist Hidenobu Tokuda told The Straits Times, is partially due to temporary factors such as a demand boom for IT devices in Asia. He added that the structural strength, as seen from potential growth rates, is “improving but at a very sluggish pace”.
Mr Abe, of the ruling Liberal Democratic Party (LDP), has framed the snap election as a public mandate on how to spend additional revenue from a slated tax hike in October 2019, from 8 per cent to 10 per cent.
Instead of the original plan of devoting 80 per cent of the income to repaying government debt, which stands at more than 230 per cent of the gross domestic product, Mr Abe wants to spend more on social security measures.
Ms Koike, meanwhile, has said she wants to delay the tax hike until “economic growth gains sustainable momentum”.
Both proposals fail to curtail Japan’s runaway debt, and Mr Tokuda said they could prove risky to the country’s fiscal outlook should there be an interest rate rise or an economic recession.
He also questioned Ms Koike’s basis for delaying the hike: “The Japanese economy has already gained sustainable momentum and will continue to grow at about 1 per cent, unless there is another negative shock from abroad.”