Higher wages could bring deflation to an end in Japan

Subject

The economic outlook for Japan.

Significance

Japan’s GDP returned to growth in the second quarter of 2018 after a single quarter of decline. The real, price-adjusted increase of 1.9% (quarter-on-quarter, annualised) came despite record rainfall in western Japan last month and a deadly heat wave that together claimed 324 lives. Even as the GDP figures were announced, a strong typhoon was making landfall in eastern and north-eastern Japan, dumping heavy rain.

Impacts

• The impact of the extreme weather on consumer behaviour is significant but will subside.
• Wages may be on the rise, which will have a positive impact on inflation expectations and price-setting.
• Trade tensions with the United States, particularly in automobile exports, hang over future output, and growth.