Japan economy posts longest expansion in over a decade

Illustrative image - Photo: Bloomberg

The growth in Japan's GDP -- 4.0 percent at an annualized rate -- blew past market expectations for a 0.6 percent rise, and was well up from a 0.4 percent expansion in the first quarter, according to figures from the Cabinet Office.

The world's number three economy has been picking up steam, mainly on the back of a surging exports including smartphones parts and memory chips, with investments linked to the Tokyo 2020 Olympics also giving growth a boost.

But the latest GDP figures were driven by robust domestic demand and capital spending, which offset a quarterly decline in exports.

Private consumption picked up 0.9 percent in the second quarter -- individual spending accounts for more than a half of Japan's GDP.

The labor market is tight and business confidence is high but efforts to lift inflation have fallen flat despite years of aggressive monetary easing by Japan's central bank.

The latest reading nonetheless means Japan's economy has had its best string of gains since 2006, during the tenure of popular former prime minister Junichiro Koizumi.

Monday's figures are good news for the current prime minister Shinzo Abe -- whose brief and underwhelming first term as Japan's premier came directly after Koizumi.

A string of short-term leaders followed before Abe swept back to power in late 2012 on a pledge to reignite Japan's once-booming economy with a plan dubbed Abenomics.

The scheme -- a mix of huge monetary easing, government spending and reforms to the economy -- stoked a stock market rally and fattened corporate profits.

But critics have cast doubt on the plan, as heavily-indebted Japan grapples with low birthrates and a shrinking labor force.

Abe has seen his public support rating plummet in the past few months over an array of political troubles, including allegations of favoritism to a friend in a business deal.

Japan has been struggling to defeat years of deflation and slow growth that followed the collapse of an equity and property market bubble in the early nineties.

The Bank of Japan, aiming to create two-percent inflation as a key part the growth bid, now expects to reach that goal by sometime in the year to March 2020 -- four years later than planned.

Falling prices can discourage spending by consumers, who might postpone purchases until prices drop more or look to save money instead.

That puts pressure on businesses, creating a cycle in which firms then cut back on expanding production, hiring new workers or boosting wages.