Japan registered economic expansion for eight quarters on the trot, courtesy of strong business spending and increase in investments in technology and machinery. Further, unemployment has been the lowest since April 1993. Also, influx of money into the economy in the form of consumer and private spending coupled with business-friendly economic and monetary policies provided the required stimulus to Japan’s economy.

In view of the favorable economic conditions, picking mutual funds that invest in Japan seems prudent.

8th Straight Quarter of Growth

Japan’s economy grew at an annualized rate of 1.6% in the fourth quarter compared with the preliminary estimate of 0.5% and steering past economists’ expectations of 0.9%. The upside was primarily driven by an upward revision in key business areas. This also reflects a 0.4% quarter-over-quarter increase, up from the initial reading of 0.1% and 0.3% registered in the third quarter. 

The economy has improved for eight consecutive quarters, the longest streak since a 12-quarter expansion ended in 1989 — the period of Japan’s economic bubble. Bank of Japan’s easy money policies and Prime Minister Shinzo Abe’s stimulus measures are other factors conducive to growth.

Factors Contributing to Growth

The upward revision was primarily backed by faster-than-expected rise in capital expenditure, driven by robust investment in technology, and information and communications like smartphones and production machinery such as robots and labor-saving technology.

Capital expenditure increased 0.7%, marking the fifth straight quarter of growth. Another key factor that contributed to upward GDP revision was a buildup in private inventory, caused by rising stock of crude oil and natural gas, steel products, electronics parts and devices.

Moreover, private consumption grew 0.5% against a contraction of 0.6% in the previous quarter and in line with preliminary estimates. Given this scenario, policymakers are keen on creating a virtuous growth cycle, wherein higher wages can act as a stimulus to increased consumer spending, which will help boost business investments and inflation. Also, jobless rate in Japan fell to a 25-year low of 2.4% in January on the highest number of job openings in as many as 40 years.

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