Record breaking Japanese GDP

Ahead of the release of Japan’s preliminary Q2 2017 GDP figures on Monday, 14 August, Katsunori Kitakura, lead strategist at SuMi TRUST, forecasts continued growth, marking the first time in 11 years that the country’s economy has grown for six straight quarters:

“We forecast  that the Q2 2017 GDP figures will show the Japanese economy has continued to grow at an annualised growth rate of 2.7%, a notable increase from its 1.0% growth in Q1 2017. This will be the first time in 11 years that Japan’s economy has grown for six quarters in a row.

“In contrast to what we saw for Q1 2017, we do not expect any potential of negative revisions for the Q2 2017 figures. As such, we believe there will be no surprises in September, when revised GDP data for the second quarter of the year  is released.

“Overall, we observed that domestic demand grew at favourable rate in the last quarter, based on rising personal consumption supported by a positive labour market (e.g. low unemployment and an increasing job-opening to applicant ratio), and an improvement in consumer sentiment. Also, moderate consumer price increases have given Japanese people more money to spend – and this was translated in economic terms. Capital expenditure has kept its positive momentum on the back of strong earnings growth. Fiscal stimulus from 2016’s supplementary budget, which focused on investment and funding for public works, also became a supporting factor for the economic growth rate. In addition, after a negative period, inventories have once again become positive contributors thanks to an increase in production.

“On the other hand, external demand has temporarily become a negative contributor to Japan’s economy for the period. Indeed, Q2 2017 trading data suggest imports have overtaken exports.

“Since mid-2016, the Japanese economy has been supported by recovery of the global economy, and an increase in exports driven by an increasing demand for Information Technology overseas – mainly in China. However, we have started to see recovery in domestic demand driven by capital expenditure and personal consumption since Q1 2017. We believe that if these positive factors can spur a large jump in growth in Q2 2017, then it will become a tail wind for the Abe’s administration, especially after its recent cabinet reshuffle, and also have a positive effect of the stock market.

“Looking ahead next quarter, we think that in Q3 2017 there will not be such a dramatic growth as we expected for the second quarter, however, domestic demand will continue to follow a growth trend. This means that there will be annualised growth of 1.0%. For the current financial year (April 2017-March 2018) we forecast that the Japanese economy will expand at +1.5%, and that a further rise  in exports and imports will both be required for the Bank of Japan to meet its own forecast of 1.8% growth.”