Sam's Economics Blog

Japan's growth rate picks up pace

Japan's economy, the world's second largest, has grown more quickly than many experts forecast, underlining its emergence from years of stagnation. The rate of growth was 1.3% in the three months from October to December, up from 1.2% in the previous quarter, Cabinet Office figures showed. On an annual basis growth was 5.5%, the quickest for three years. Japan's economy has turned around as consumers and companies have picked up spending and exports have increased.

But analysts said the latest growth figures were unlikely to prompt another rise in rates as concerns remained that that higher borrowing costs could stall the country's economic recovery. Politicians have asked the Bank of Japan (BOJ) not to rush to raise interest rates for fear that it would stop consumer and company spending in its tracks. Japan has only just increased its main borrowing cost from almost zero to 0.5%, the highest level in a decade.

Read the full story at: http://news.bbc.co.uk/1/hi/business/6440761.stm

The growth of GDP in Japan has been fuelled by growth in two of the key components of GDP: consumption and exports. A rise in interest rates would depress both consumption and investment, and as these are both important components of GDP, would reduce growth of GDP. Since Japan's recovery is seen as being fragile, most commentators think that the BoJ will not raise interest rates and jeopardise the recovery.

The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. Chapters 4 and 9 (at principles and intermediate level, respectively) describe the various components of aggregate demand and illustrate the determination of national income. Find out how to get LiveEcon at http://www.liveecon.com/. Download this blog as a Blogcast via the website.