The Japanese economy grew 3.9% at a seasonally-adjusted annualized rate in Q3 2010 and over 2X the pace in Q2 2010 (data here). According to Bloomberg, the headwinds to Q4 growth are household consumption and the yen:
The chart illustrates the contributions to non-annualized quarterly growth (not annualized, GDP grew near 1% in Q3) from each of the GDP components: private consumption (C), investment (I), inventory build (Inv), government consumption (G), and net exports (NX).
The Q3 pace of growth is almost certainly not sustainable and has a decent chance of turning negative in Q4 2010 for the following reasons. (See charts below text for illustration)
* The biggest contribution to Q3 growth came from consumer spending, +0.66%. Investment contributed positively, 0.11%, but has been trending downward. Key data points are inauspicious for consumer spending: the unemployment rate hovers stickily around 5% and October auto sales saw a 27% annual decline, as green auto subsidies expired.
* Although the JPY/USD has appreciated 14% since the middle of 2010, the real effective exchange rate, the economic driver of a country's trade balance, has been stable over the same period (see final chart below) and in line with its longer-term average. So while I don't expect net exports to turn negative, per se, any additional impetus to growth is unlikely to come from trade.
* Therefore, the key to growth is final domestic demand, and more specifically consumer spending. That's a stretch.
![](http://3.bp.blogspot.com/_Et4TQ-a0gGU/TOESVOl3DxI/AAAAAAAADYc/nRXvdQmL_vw/s320/reer_chart.jpg)
![](http://4.bp.blogspot.com/_Et4TQ-a0gGU/TOESVmmivzI/AAAAAAAADYs/HMFpOZo-onI/s320/auto_sales.jpg)
Rebecca Wilder![](http://feeds.feedburner.com/~r/blogspot/Hzoh/~4/hrm5j1Seg74)
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![](http://2.bp.blogspot.com/_Et4TQ-a0gGU/TOESVcDdzlI/AAAAAAAADYk/BXQJKmWlxMU/s320/q3gdp_chart.jpg)
The Q3 pace of growth is almost certainly not sustainable and has a decent chance of turning negative in Q4 2010 for the following reasons. (See charts below text for illustration)
* The biggest contribution to Q3 growth came from consumer spending, +0.66%. Investment contributed positively, 0.11%, but has been trending downward. Key data points are inauspicious for consumer spending: the unemployment rate hovers stickily around 5% and October auto sales saw a 27% annual decline, as green auto subsidies expired.
* Although the JPY/USD has appreciated 14% since the middle of 2010, the real effective exchange rate, the economic driver of a country's trade balance, has been stable over the same period (see final chart below) and in line with its longer-term average. So while I don't expect net exports to turn negative, per se, any additional impetus to growth is unlikely to come from trade.
* Therefore, the key to growth is final domestic demand, and more specifically consumer spending. That's a stretch.
![](http://3.bp.blogspot.com/_Et4TQ-a0gGU/TOESVOl3DxI/AAAAAAAADYc/nRXvdQmL_vw/s320/reer_chart.jpg)
![](http://4.bp.blogspot.com/_Et4TQ-a0gGU/TOESVmmivzI/AAAAAAAADYs/HMFpOZo-onI/s320/auto_sales.jpg)
![](http://3.bp.blogspot.com/_Et4TQ-a0gGU/TOESUyIksRI/AAAAAAAADYU/Qm255WIa3_0/s320/urate_chart.jpg)
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