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Japan economy strengthening good news for Australia

The rapid improvement in Japan’s economy is important and is positive for Australia and the world. Japan is Australia’s second largest trading partner. Last year, Japan imported from Australia just under $18 billion worth of coal, around $11 billion of iron ore and $1.5 billion each of beef and copper.

Since Japanese Prime Minister Shinzo Abe when he took office late last year, there are some encouraging early signs that his policy Big Bang might be getting traction. The early evidence of the success of the massive policy stimulus showed up with the Japanese Cabinet Office monthly economic update. The report, released yesterday, upgraded Japan’s economic outlook and at the same time the Reuters Tankan survey showed signs of a broad based lift in activity. The Tankan survey for manufacturers rose to +7 index points in May from -4 in April to register the first positive reading in a year.

The Tankan non-manufacturing index was even more impressive with a jump in the index to +19 points in May from +12 in April. The non-manufacturing index is at its highest level since October 2007.

For the global economy, Japan remains the third or fourth largest economy in the world, depending on which measure one cares to use. Either way, Japan still has a significant impact on global economic conditions, particularly when it shows a sharp turn in its business cycle.

A strong Japan is good for the world and of course, good for the people of Japan.

The Nikkei 225 has risen for 10 straight months to be a stunning 75 per cent above the levels of mid-2012. This stellar rise could be the start of some long overdue asset price inflation. In turn, this should boost household wealth and engenders a degree of confidence in an otherwise depressed economy.

In the March quarter, GDP rebounded at an annualised pace of 3.5 per cent, a strong result albeit from a weak base. The main source of growth in the quarter was a sharp lift in exports which no doubt owes a lot to the 20 per cent fall of the yen, which in turn is the direct result of the policy that doubled the money base.

Source Business Spectator