Is Japan overheating? – Capital Economics

Japan’s economy recorded an eighth consecutive quarter of growth in Q4, the longest uninterrupted run of expansion since the late 1980s, points out Marcel Thieliant, Senior Japan Economist at Capital Economics.

Key Quotes

“Unemployment is very low, inflation has started to pick up, condominium prices have soared and credit growth is the strongest it has been since the 1980s bubble. However, private debt remains low relative to output. And with wages barely rising and inflation likely to remain well below the Bank of Japan’s target for the foreseeable future, this doesn’t add up to overheating.”

“Output and activity indicators show that the economy recorded an eighth consecutive quarter of expansion in Q4 though growth wasn’t as vigorous as in the second half of last year. METI’s new artificial intelligence estimates of industrial production point to a slump in January.”

“Consumer indicators reveal that consumer spending rebounded last quarter. Households remain in high spirits but the Economy Watchers Survey points to a slowdown.”

“Business indicators show that sentiment in the manufacturing sector climbed to multi-year highs last month as external demand remains strong.”

“Labour market indicators show that the labour force has started to slow even though more women are entering the labour market and the number of foreign workers is soaring. And while the labour market is very tight, wage growth remains sluggish.”

“Inflation indicators show that rising capacity utilisation continues to lift price pressures. However, producer prices of consumer goods are now slowing again as the exchange rate hasn’t weakened any further over the past year.”

“Property market indicators show that inventories of unsold properties in Tokyo have started to fall again. This seems to reflect falling supply as sales remain very weak. The surge in condominium prices has run out of the steam.”

“Financial market indicators show that the yen has continued to strengthen against the dollar even though interest rate differentials point to a weaker yen. Meanwhile, the sell-off on global stock markets at the start of the year has now started to reverse. But with valuations looking increasingly stretched, we don’t see much further upside this year.”