One of the reasons the Japanese economic narrative remains so negative is because analysts insist on placing too much of an emphasis on real quarter on quarter (QOQ) annualised GDP instead of nominal GDP growth, she said.
“We have had 12 consecutive quarters of year on year growth in terms of nominal GDP. That is not the story you get from headlines that focus on the real QOQ annualised figure, which have been negative or in recessionary territory. Years ago, the opposite was the case – it was more convenient for the Japanese government to keep looking at real GDP because even though the economy was shrinking, if you adjusted for inflation it was possible to say the economy had actually grown.”
Kashima likewise thinks that the story on the Japanese economy remains skewed because people still regard a stronger Yen as the primal fear.
“It was right to focus on the strength of the currency when Japan was contracting because the only part of the economy that was growing nicely was the export segment,” she said. “But during this phase of the Japanese economy’s recovery, it is not so correct to entirely focus on currency. When people talk about Japan, they think of companies like Sony, Toyota and Nintendo and many of them assume that around 50-80% of Japan’s GDP is made up of exports. But in fact, the export ratio is only 15%. The only developed country with a lower export ratio than Japan is the US, which is only about 12%. Of course currency is important and it does impact short-term year-on-year profit comparisons, but there is still too much emphasis placed on currency.”
“I think it is important to focus on what the BoJ is doing, but going forward, that shouldn’t be the only thing people focus on. If you look at Abenomics Part 2, the government for the first time since the 1960’s now has a growth target,” Kashima continued. “They are targeting for nominal GDP to grow from the current ¥500 trillion to ¥600 trillion. It actually takes a lot of guts to announce a number like that because people will measure you by that, and if you don’t get there, you are bound to be criticised.”
“We need to focus on the fact that now we have this growth target in terms of GDP and, that for the first time, we have a stable government,” she stressed.
