Japan’s Oil-less Economic Recovery

Dear Readers,

We would like to share with you this section from our Daily Energy Report.

Chart of the Day: Japan’s oil-less economic recovery

Summary

Data released yesterday shows that Japan’s economy grew at its highest pace in two years. It grew by 6% on annualized basis, way higher than the median expectations by experts.

We decided to investigate Japan’s oil demand. Japan imports all its oil, therefore, we use imports as a proxy for oil demand in Japan. Figure (1) above shows the trends in weekly crude oil imports since the last week of 2020. To our surprise, Japan’s GDP recovery was oil-less.

EOA’s Main Takeaway

It is clear from the data that the growth came mostly from exports. Most prominent media outlets pointed out this fact. Exports increased, but domestic activities declined, leading to a decline in oil demand. Let us remember that exports were manufactured in a previous period, therefore the oil used to manufacture them was used in past periods. Figure (1) above reflects this fact and shows how oil in ports (again, a proxy for demand) declined in recent months, indicating serious problems within Japan’s economy. Probably Bloomberg’s headline captured this fact more than others: Japan’s Huge GDP Beat Driven by Exports as Domestic Demand Falls.

To conclude, do not be fooled by the headlines regarding growth in Japan. Exports reflect past demand. Growth in oil demand requires an increase in domestic activities, employment, wages, etc.