Quickview: What does Japan’s return to growth mean for QE?

Japan emerged from recession in the fourth quarter of 2014. Despite this, we could still see further policy easing from the Bank of Japan


Keith Wade

Keith Wade

Chief Economist & Strategist

The latest GDP release showed the Japanese economy expanded by 0.6% over the quarter (an annualised gain of 2.2%) after two consecutive quarters of negative growth following the hike in the consumption tax which weighed on activity. While this is good news, markets had been looking for a stronger gain so there was a degree of disappointment and some head scratching given monthly data released during the quarter had pointed to a stronger outcome.

Consumer spending grew, but by only 0.3% on the quarter, while housing and capital spending remained lacklustre. The bright spot was export growth which gained 2.7% on the quarter (not annualised) such that net exports added just under half the gain in GDP. We would see the competitiveness of the Japanese yen as playing a role in this, as it is difficult to identify much in the way of stronger external demand during the period.


Rising output indicates that further stimulus is not required; however, lower inflation suggests the opposite.

Going forward, we expect trade to remain a positive as Japanese firms gain market share in global export markets, but for a more robust recovery we need to see better domestic demand. Many are pessimistic on this, but the fall in the oil price will feed through into lower inflation and alongside continued gains in worker pay (the report confirmed another gain in employee compensation), this should translate into stronger real income and spending growth. Investment will probably take longer to turn as it tends to lag rather than lead growth.

Overall, we remain positive on the outlook for Japan this year. The difficult question is where this will leave the Bank of Japan’s (BoJ) quantitative easing programme. Rising output indicates that further stimulus is not required; however, lower inflation suggests the opposite, given the authorities’ 2% target. Should the BoJ see the fall in inflation as purely a function of lower oil prices, in the same way as the US Federal Reserve and Bank of England do, then we are unlikely to see further action in 2015. Alternatively, if they take an European Central Bank-style approach and focus on the headline rate (which includes all elements of inflation) rather than the core rate (which excludes food and energy), further easing of policy is in the offing.

Important information

This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.

The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.  Exchange rate changes may cause the value of any overseas investments to rise or fall.

Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.

Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.