Not only is Japan not in recession but it was growing strongly in the third quarter of 2015, as the country’s gross domestic product data cemented its reputation for unreliability.
Growth for the third quarter was revised on Tuesday from an annualised fall of 0.8 per cent to an annualised rise of 1 per cent, erasing the technical “recession” declared just three weeks ago.
The revision came in well ahead of analysts’ forecasts for a 0.1 per cent rise. It changes the whole picture of the Japanese economy, erasing any possibility of a downward spiral — assuming the revised figure is accurate.
That goes some way to vindicating the Bank of Japan’s decision not to ease monetary policy this autumn and reduces the chances of more easing in the near future.
“The upward revision from a technical recession to some growth . . . is welcome and consistent with the improvement in national income,” said Masamichi Adachi at JPMorgan in Tokyo. But he said the average of 0.2 per cent growth in the past two quarters was best described as “stagnation”.
Investment was the main force behind the revisions: it was amended from a quarter on quarter fall of 1.3 per cent to a rise of 0.6 per cent. Instead of subtracting 0.7 percentage points from annualised growth, therefore, it added 0.3 percentage points.
Japan’s government is pushing companies to increase investment at home and raise wages to boost demand, stimulate the economy and escape deflation.
Companies also whittled down inventories less than previously thought. Whereas in the first estimate inventories knocked 2.1 percentage points off annualised growth, that was revised down to 0.8 percentage points.
Analysts said the inventory revisions were less encouraging because companies will remain under pressure to cut stockpiles in the months ahead.
“As a result of annual revision to the past data, the entire trajectory of inventory investment since 2013 was revised up significantly,” said Ryutaro Kono at BNP Paribas in Tokyo. “This is not great news for growth in coming quarters.”
Inventory changes are a one-off, however, so the figures suggest reasonable final demand in Japan’s economy despite the slowdown in China and sluggish wages.
The first estimate of Japan’s GDP is notoriously unreliable and prone to large revisions. According to an OECD study, revisions are more than twice as big as in the US, and on a par with much smaller economies such as New Zealand or Norway.
Figures for investment in the first release rely heavily on ‘supply-side’ data such as industrial production and shipments of capital goods. Japan’s Cabinet Office uses statistical extrapolation fill out the gaps.
In the second estimate, it uses a “demand-side” survey of companies, asking how much they invested. Large differences between the two approaches are the main reason for the regular revisions.
Japan devotes fewer staff to the national accounts than many other countries and senior policymakers often complain about the quality of the data. According to people familiar with the matter, the issue has even been raised at Prime Minister Shinzo Abe’s council on economic and fiscal policy.
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