Chinese and Japanese economic data misses expectations

It was a session of misses in Asia, with Japan’s GDP and trade figures, as well as China’s inflation data all coming in below expectations. The implications of the unexpected figures from the two neighbouring countries contrast each other. Lower inflation in China may provide Beijing with more room to support the economy during a difficult transition, while Japan’s data highlights the problems facing Tokyo.

Japan’s economy grew less than expected last quarter, rising a seasonally adjusted 0.3% q/q and 1.1% annualised (expected 0.4% and 1.6% respectively), and its current account unexpectedly dropped into deficit territory in October, sinking to -127bn yen from 587.3bn yen (expected 148.9bn yen). Consumer prices in China increased less than expected at 3.0% y/y (expected 3.1%).

Japan’s slew of disappointing data highlights the headwinds that are facing the struggling Island nation. Policy makers are banking on a sustained economic recovery ahead of a planned increase in the sales tax in April that is predicted to put a small speed break on growth. Today’s figures show that businesses aren’t very optimistic about Japan’s growth trajectory, with a drop in business investment contributing to the downwards revision in growth. Business spending was flat last quarter, after rising 0.2% in the previous quarter. Unsurprisingly however, consumers appear to be inclined to spend more ahead of the planned increase in the sales tax, with consumer spending rising 0.2% over the same period.

In China, a smaller than expected increase in consumer prices has bolstered expectations that Beijing has more room to push through tough reforms that are intended to transform China’s economy. Given the drop in inflation, the question has to be asked: did Beijing stop pumping money into the economy at the right time?

Earlier in the year the government stopped pumping the economy full of liquidity, partly due to fears that it would exacerbate inflation further down the track. This latest round of data indicates that policy makers may have made the right decision, and now they have more room to support the economy as it changes its stripes. Inflation isn’t low enough to cast doubt over the economy, but it does provide the government with more wiggle room. In other words, Beijing can push through its planned reforms and keep growth aloft at the same time.