GLOBAL tailwinds look set to sustain Japan’s modest recovery in 2017, as exports prop up an economy that’s still struggling to stoke domestic demand.

    Yesterday’s upward revision of gross domestic product (GDP) from an initial estimate of 0.2 percent to 0.3 percent in the final three months of last year sets the scene for a fifth-straight period of growth — the longest streak since the six quarters of gains to mid-2006.

    A yen that’s forecast to remain relatively cheap as U.S. interest rates rise should bolster Japan’s competitiveness, underpinning corporate profits and continued investment in manufacturing to meet overseas consumption.

    Still, there’s little hard evidence to suggest that Japan’s tight labor market will spark strong wage gains that might encourage households to spend more and companies to expand output for the domestic market.

    “The data show that we don’t need to be pessimistic about the outlook for the economy,” said Hiroshi Shiraishi, a senior economist at BNP Paribas in Tokyo. “Japan is on track for recovery, led by exports and production thanks to the pickup in the global cycle.”

    Marcel Thieliant of Capital Economics, who forecasts GDP growth to hold steady at 1 percent this year, warned that the picture looks cloudier in 2018, because as inflation gradually rises, households will see their purchasing power undermined.

    “One factor holding back growth is that firms continue to expand capacity abroad rather than at home,” he said in a note after the data were released.

    “Balance of payments show that outward foreign direct investment has climbed to a record high,” Thieliant said.

    (SD-Agencies)