The 4.0 percent annualized growth of Japan's economy in the April-June quarter — stronger than most forecasts by the private-sector and marking the longest streak of increase in the gross domestic product in 11 years — is still no cause for unguarded optimism over the course of the nation's economy. While GDP growth in the last quarter was driven by capital investments by businesses and consumer spending, which together account for the bulk of domestic demand, a full-scale recovery in individual consumption remains precarious, given that wage growth continues to be slow despite the tightening labor demand. The government should not ease up on its efforts to turn the economy's continuing uptrend into sustained growth.
According to the preliminary figures released by the Cabinet Office, the nation's GDP in the last quarter grew 1.0 percent in real terms from the January-March period, or an annualized 4 percent assuming that this pace of growth is sustained for a year. The April-June growth was the sharpest since the January-March period of 2015 and picked up speed from the 1.5 percent increase in the first quarter of this year. The sixth quarterly GDP growth in a row was the longest streak since the one that ended in the April-June period of 2006. While exports — whose increase drove the economy's upturn in recent periods — fell for the first time in four quarters, business investments rose 2.4 percent and consumer spending 0.9 percent. Combined with the 5.1 percent rise in public works spending and 1.5 percent growth in housing investments, domestic demand pushed up the economy by 1.3 percent.
The growth in personal consumption, which accounts for 60 percent of GDP, was supported by renewed demand for automobiles and household electric appliances, but is also believed to have been aided by favorable weather that pushed up spending by consumers. It's far from clear whether we're seeing a robust recovery in consumer demand. Behind the uncertainty over the course of consumer spending is stagnant growth in wages even as labor demand is the tightest in more than 40 years.