Japanese Gross Domestic Product Marks Spectacular Growth

Forex News

Japanese economy beat all projections, contracting 0.6% on an annualized basis (the forecasts suggested 0.2%). The contraction was caused by drops in investment, consumption and export growth. Data pointed at 8th consecutive quarter of growth and at the longest streak in twenty-nine years. Q4 growth was revised to an annualized 0.6% percent, down from the 1.6%. Capital expenditure dropped 0.1% percent. Q1 consumer spending has slightly decreased.

Toshimitsu Motegi (Economy Minister) says the government was convinced the economy was recovering gradually, adding that improved growth was attributed to private consumption and capital expenditure. Motegi cautioned: "But we need to be mindful of the impact of overseas economic uncertainty and market volatility".

External demand added only 0.1 pp to Q1 GDP. Export growth is seemed to be slowing down, lifting only 0.6% in Q1, way lower than 2.2% in Q4. This was mainly driven by a drop in shipments of mobile phone parts and factory equipment. Yoshimasa Maruyama (chief market economist at SMBC Nikko Securities) explained: "Globally, IT-related items have been in an adjustment phase, which weighed down Japan's exports and factory output".

Still, analysts claim the GDP contraction is short-lived. Hiroshi Miyazaki (senior economist at Mitsubishi UFJ Morgan Stanley (NYSE:MS) Securities) told: "The economy is not headed for a recession. However, it is clear that in the long term the pace of growth is slowing. " Yoshimasa Maruyama confirmed: "The economy is unlikely to continue to contract further. The global economy is performing well and the yen is trading beyond 110 yen against the dollar, so once exports start to grow again, the economy will return to a moderate growth path".

The contraction is expected to be the reason for protracting the sales tax hike from 8% to 10%, scheduled for 2019. Kyohei Morita (chief economist at Credit Agricole (PA:CAGR) Securities) stated: "The revised GDP data 2017 showed the economy had already started to slow down from the beginning of last year. And the economic contraction for January-March may support some ruling officials' call for a delay in a planned sales tax hike".