Yen And Yang

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What's going on?

Data out on Tuesday showed that Japans economy outstripped expectations last quarter, with exports balancing out weak domestic demand.

What does this mean?

Japans economy dazzled last quarter, boasting 6% annualized growth its strongest showing since late 2020. And that wasnt just a minor win for the country: it was actually double what analysts had on their charts. Exports did a lot of the heavy lifting there, with auto shipments to the US and Europe taking the lead. And the limping Japanese yen, near its weakest in decades, meant those takings packed an even bigger punch when brought home. Tourism made a comeback too, recapturing over two-thirds of its pre-pandemic buzz. But not everythings in full bloom: domestic consumption, which forms the heart of Japans economy, took a 0.5% hit. That comes as businesses and consumers alike are tightening their belts, now that the ghost of inflation, after years of no-shows, is spooking spenders.

Why should I care?

The bigger picture: Leaning on friends.
While Japans recent economic glow-up is commendable, its mostly fueled by external demand. And thats a little bit risky, given that Western economies which drove a lot of this growth are facing their own set of challenges at the moment. At any rate, economists think this export-driven momentum might not last and if theyre right, Japan could find itself in a tricky spot. Given that backdrop, its unlikely well see the central bank pulling back on its hefty stimulus measures anytime soon, as some were speculating.

Zooming out: Peas in a pod.
Japan isnt alone in its domestic demand dilemma. After all, Chinas recent data revealed a similar problem, with retail sales growing surprisingly slowly in July. But Chinas already making moves: on Tuesday its central bank made the biggest cut to a key interest rate since 2020, in a bid to give the economy the boost it clearly needs.

Originally posted as part of the Finimize daily email.

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