Basically the headline news is that the Japanese economy expanded an annualized 2.6% in the three months ended Sept. 30 (or a quarterly increase of 0.6%) following a revised 1.6% contraction in Q2, according to data released by the Cabinet Office in Tokyo today.
Really after the surge in industrial output in August (and September), and the comparatively good news on the exports front recently (August and September), this outcome was not entirely unexpected, as Claus indicated in his recent lengthy post.
What seems to stand out from the chart is that quarterly GDP growth was tapering down during 2006 until we hit the 4th quarter. Then there was a sudden surge, following which the former trend has been resumed, with a good deal more volatility. This picture becomes even clearer when we smooth out some of the volatility and look at the quarterly year on year chart.
As we can see, the long march upwards which characterised 2005, and lasted into Q1 2006, started to weaken in Q2 and Q3 2006, but then things suddenly changed course in Q4 with another strong upswing, an upswing which did not last, and what we have seen since then is a Japanese economy is steadily weakening, and which is now almost exclusively dependent on the fate of exports for determining its momentum. Basically the narrative we could read into this is that had Japan been a "normal" economy (in textbook terms) and not an "elderly" one, then in the middle of 2006 (in Q2 and Q3) we could have expected domestic consumer demand to swing into action, and take over some of the load as the big push from exports, and export driven investment, started to wane. But consumption didn't play that role, and it won't now, and it isn't going to, since Japan is not a "normal" economy (in the neo-classical theory sense), but a rapidly ageing one, struggling to come to terms with the effects of over 30 years of sub replacement fertility. It is dependent on exports for the growth it gets, and when exports slow, as they may well be about to, then watch out. This is what all the current sentiment indexes and other short term indicators seem to be telling us right now.
