Japan Rides The Great Wave


Image source: designer.oki / Shutterstock.com

What's going on?

Moshi moshi good times. Japan’s economy unexpectedly grew nearly twice as fast as predicted during the third quarter of this year – suggesting that the country is at last shrugging off a protracted economic slump.

What does this mean?

Japan is currently experiencing one of its longest periods of economic growth since the 1990s. Japanese businesses are investing more in themselves (e.g. buying more equipment) in an attempt to cash in on increasing growth in markets around the world, while Japanese exporters are selling more of their goods thanks to a weaker yen and stronger demand in global markets.

Still, the land of the rising sun has several economic demons to grapple with: wage growth remains low, for one, so consumers can’t plow any higher earnings back into the economy and give it a boost.

Why should I care?

The bigger picture: Japan’s economy has a way to go before things might be considered “normal”.

Even though Japan’s economy might have a double spring in its step, a good deal of it is still running on life support from highly supportive monetary policies (Japan essentially invented what’s now known as quantitative easing back in 2001). However, if the economy continues to grow (perhaps supported by its recent free trade deal with the EU or stimulus from the government), the country’s central bank might actually begin to scale back these measures.

For markets: The yen (surprisingly) fell versus the dollar on Friday.

Generally, investors buy up the currencies of economies that are expected to grow fast in order to buy into the action, but the yen fell against the dollar on Friday. Since the election of Donald Trump (indeed for the past ten years), the yen has been lower than it used to be versus the dollar. That’s definitely a boon to Japan’s exporters, who can sell their goods in America more cheaply.

Originally posted as part of the Finimize daily email.

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