Chief economist update: Onwards and downwards to a recession?

Now look at what you've done.

It's over! Japan's eight consecutive quarters of expansion is no more. Preliminary estimates show the country's real GDP contracted by 0.2% in the March quarter, more than reversing the 0.1% gain in the previous three-month period. Another quarter of negative GDP growth would bring it back into a technical recession.

Apart from ending the longest stretch of quarterly economic expansions since 1989 - 12 straight quarters of growth between the June 1986 quarter and the March quarter of 1989 - the latest data has intensified the deceleration in the year-on-year economic growth rate from 1.9% in the September 2017 quarter and 1.8% in the final quarter of last year, down to just 1% in the March 2018 quarter.

There have been a number of excuses for the Japan's first quarter contraction ... but mostly along the lines of "these are preliminary numbers" would be adjusted higher at the next estimate.

This one from The Japan Times:

"...the latest preliminary numbers, often prone to statistical revision, may actually belie a relatively healthy economy on pace for modest growth in 2018, economists said."

Then again, revisions can go both ways - up or down. Case in point: fourth quarter GDP data was revised down from an annualised growth rate of 1.6% to just 0.6% or in year-over-year terms, down from 2.1% to 1.8%.

The latest Japanese growth (ungrowth?) figures underline the impact of policy exit speculations and reasoning behind the BOJ's recent decision to delete the expected timing of when it would achieve its inflation objective.

As BOJ Governor Haruhiko Kuroda explained the reason for eliminating the target date, at his post-meeting conference after the April 26 BOJ meeting:

"There was a market tendency to see our forecast as a deadline, and to seek connection between the forecast and policy actions."

This prompted speculations of a policy exit that in turn, sent the Japanese yen and the yield on 10-year Japanese government bond yields higher, nullifying the BOJ's efforts.

It appears that in Japan, history really repeats.

The hope is that it doesn't repeat the history of its last longest expansion in 1989 - the one which after the end of that year, the Nikkei-225 index peaked and collapsed and property prices dropped by as much as 70% ... and was followed by decades of growth bouncing around the bottom.

Ben Ong is the Director of Economics and Investments at Rainmaker Group. He previously worked as a fund manager, economist, asset allocation strategist, portfolio analyst and stock market analyst. Check out his economics analysis here.

Read more: BOJGDPrecessionHaruhiko Kurodaexit strategyJapan Times
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