The 6% rate of annualised growth in Japan’s GDP figures which was revealed this morning, and which translated into a quarterly gain of 1.5%, has prompted some analysis from Chief Global Strategist John Vail, at Nikko Asset Management.
Japan’s surprising GDP surge to a record high was led by external trade, with exports in real terms rising strongly while imports sank. Excluding such, domestic demand, including in the private sector declined vs. the January-March quarter. Real personal consumption declined, which was much weaker than expected, and remains well below pre-pandemic levels as inflation hampered demand. Residential construction rose, but also remains well below pre-pandemic levels, while corporate capex was roughly flat and approached record levels.
Moreover, the previous four quarters of GDP were revised up, with the January-March quarter up by an unannualized 0.3%. Corporate capex and residential construction were revised up the most, but personal consumption was also revised up a modest amount, while government spending was revised down.
After all the revisions, GDP rose at a 2.0% rate vs. last year, the same rate as the previous quarter. On this basis, personal consumption rose only 0.2% after 2.7% in the previous quarter, while other major categories rose much more firmly. Real exports rose on this basis for the tenth consecutive month, while real imports finally declined. Domestic demand only grew at 0.8% after 2.4% in the previous quarter.
Despite the headline strength, domestic demand actually fell in the quarter and only grew 0.8% vs. last year. The export news was heartening and bodes well for Japan’s continued trade competitiveness, while the outlook for domestic demand should improve somewhat as inflation decelerates and thus supports more personal consumption.