Japanese monetary trends suggest continued solid if unspectacular economic growth through late 2015.
GDP rose by 2.4% annualised in the first quarter versus a downwardly-revised 1.1% in the fourth quarter (previously 1.5%). The pessimistic spin is that, from the demand side, most of the growth last quarter was arithmetically due to the inventory component. This positive contribution, however, reflected a reduced rate of destocking rather than an accumulation of inventories, so is unlikely to imply a drag on future growth.
The economic recovery was signalled by monetary trends, with six-month growth of real narrow and broad money returning to a healthy level last autumn, stabilising more recently – see first chart.
Monetary trends typically precede economic activity by about six months but the lead-time was shorter in 2014, probably because real money developments were dominated by changes in the price level rather than swings in nominal growth. The six-month change in real money was pushed negative by the April 2014 sales tax hike, rebounding in October when this dropped out of the inflation calculation – second chart.
Current monetary trends suggest respectable economic expansion through late 2015 but real narrow money growth is lower in Japan than in the US and Eurozone – third chart.
