Research and analysis

JAPAN: ECONOMY: Q3 GDP REVISED DOWN UNEXPECTEDLY

Published 11 December 2014

This research and analysis was withdrawn on

This publication was archived on 4 July 2016

This article is no longer current. Please refer to Overseas Business Risk – Japan

This publication was archived on 4 July 2016

This article is no longer current. Please refer to Overseas Business Risk – Japan

Summary

Japan’s economy is confirmed to be in a technical recession. Q3 GDP is revised down slightly despite consensus estimate of moderate upward revision. But the current account shows a strong surplus. Will PM Abe’s mandate to pursue reforms be renewed in the forthcoming elections?

Detail

Japan’s GDP growth rate was revised down slightly from -1.6% to -1.9% annualised rate in Q3. The downward revision was unexpected, as a majority of economic forecasters had predicted an upgrade (i.e. –0.5% annualised rate). Downward revisions in private capital investment and public investment led this downward revision.

Private capital investment in Q3 was weaker than expected (-0.4% quarter over quarter from -0.2% qoq vs. consensus of 0.8% qoq). Most forecasters had predicted that it would be revised up due to strong investment figures in the Ministry of Finance’s (MOF) Q3 corporate survey, which was a major input for this revision. Public investment was also smaller than initially estimated (+1.4% qoq vs. +2.2% qoq).

Separately released October Balance of Payments figures showed that the current account (CA) was in an 833.4bn yen surplus (£4.4bn). This was the fourth consecutive monthly surplus and much larger than the consensus estimate (i.e. 358.0bn yen). A continuously robust income surplus drove the CA surplus along with an improved trade deficit.

The income surplus increased 48.3% compared to a year ago (YOY) to 2.19 trillion yen (£12bn) in October. This was the largest ever, more than offsetting the trade deficit of 766.6bn yen (£4.1bn). The trade deficit declined 16.9% YOY, as exports rose by 11.2% YOY, outperforming imports with a 7.4% YOY increase.

The Nikkei went up over the 18,000 mark once during the 8 Decemnbers session, for the first time since 24 July 2007. Optimistic sentiment from better than expected US employment data over the weekend was strong enough to overcome the impact of the weaker-than expected Q3 GDP figures.

Comment

This GDP revision confirmed that the Japanese economy has been in a technical recession. Slow recovery in private consumption after the April VAT increase and weak investment were the major background.

Disclaimer

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