Weekly Buzz: A rising sun: Japan outshines expectations

25 August 2023

The world’s third largest economy, Japan, has outshone expectations, with exports balancing out weaker domestic demand. Data for the last quarter showed that Japan’s economy dazzled with 6% annualised growth, its strongest showing since late 2020.

What’s boosting the Japanese economy?

Quarter-on-quarter, Japan’s gross domestic product (GDP) (for a refresher, look for our Jargon Buster below) has grown 1.5% – double what analysts had on their charts. Exports have done a lot of the heavy lifting here. The Japanese yen, down by more than 10% versus the US dollar this year, has been a key factor in this, making Japanese products cheaper and more attractive. 

Tourism made a comeback too, recapturing over two-thirds of its pre-pandemic buzz. And there’s likely more to come, as China just lifted its ban on group tours to Japan.

But not everything’s in full bloom: private consumption, which forms the heart of Japan’s economy, took a 0.5% hit. That comes as businesses and consumers alike are tightening their belts, now that the spectre of inflation – after years of deflation – has returned.

How does this affect me as a long-term investor?

While Japan’s recent economic growth is exciting, it’s largely fueled by external demand. And that’s a little bit risky, given that Western economies – which drove a lot of this growth – are facing their own set of challenges at the moment.

So it’s unlikely we’ll see the Bank of Japan pulling back on its hefty stimulus measures anytime soon, which could continue to add momentum. Given this backdrop, Japan may still be an investment bright spot. And if you’re upbeat on Japan’s prospects, our Flexible portfolios allow you to custom-tailor an investing strategy that focuses on Japanese ETFs.

💡 Investors’ Corner: A second wave of inflation?

Inflation in developed economies is hinting at a break, but some investors aren’t ready to relax just yet. The chart below compares inflation today to what it looked like in the 1970’s, and while they look similar, this is just a surface comparison. Are there deeper trends that could support a second wave of inflation?

Wages, for one, seem familiar. Back in the 70’s, American trade unions cemented higher pay for workers – and similarly, today’s low supply of labour is forcing firms to keep salaries high. And because higher wages give folk more money to spend, that demand pulls up prices.

And then there are costs. In the early 70’s, the biggest oil-producing nations joined together in an embargo that shook the oil market. This time around, supply shortages related to Covid and the war in Ukraine have kept commodity prices high.

But not everything’s similar. The world’s already gradually moving away from fossil fuels, for one. So sure, there’s a chance of a second wave of inflation, but the world’s a very different place now than it was 50 years ago.

This article was written in collaboration with Finimize.

🎓 Jargon Buster: Gross domestic product (GDP)

Gross domestic product, or GDP, is the total value of all goods and services a country has produced in a given year. It covers everything, from cars and computers, to haircuts and hamburgers. GDP can be used to track how an economy is doing over time – if GDP is growing, it means that the economy is getting bigger, and vice versa. While GDP is a straightforward tool, it's important to remember that it's only one measure of an economy's health.

✨ StashAway’s 2023 H1 Returns and H2 Outlook articles are both out now!

We’re halfway through 2023 now, and it’s been rather hectic. From mini banking sector crises in the US and Europe, to the emergence of AI hype – it’s safe to say that we’ve gone through a lot so far. But there’s no need to feel out of the loop, we’re here to shed some light:

Our Returns in the First Half of 2023 - For the first half of the year, we’ve taken the bull market by the horns, and safely. See how our portfolios have performed year-to-date June 2023.

2023 H2 Market Outlook - For the second half of the year, we’re taking a step back to look at the bigger, longer-term picture, and why we see silver linings for future returns.

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