September 7, 2016 06:50 CDT

Consensus Actual Previous
Quarter over Quarter 0.0% 0.2% 0.0%
Q/Q change - SAAR 0.0% 0.7% 0.2%
Year over Year 0.8% 0.6%

Japan GDP data out today show that the economy slowed in recent months from the pace set at the start of the year, but to a lesser extent than originally estimated. Modest growth in some components of domestic demand were offset by ongoing weakness in exports as Japan's currency continues to strengthen.

The final estimate for GDP quarterly growth in the three months to June was 0.2 percent, up from the preliminary estimate of 0.0 percent published last month, but down from 0.5 percent in the three months to March. On an annualized rate, the final estimate for quarterly growth was revised up from a preliminary estimate of 0.2 percent to 0.7 percent, well below the 2.0 percent recorded in the previous quarter. In year-on-year terms, GDP growth in the period was revised up from 0.6 percent to 0.8 percent, up from 0.1 percent in the previous quarter.

Domestic demand rose by 0.4 percent in the three months to June, compared with a preliminary estimate of 0.3 percent. Private consumption rose 0.2 percent over this period, while government consumption increased by 0.1 percent. Quarterly growth in capital expenditure was revised higher from minus 0.4 percent to minus 0.1 percent, with solid increases in public investment and private residential investment offset by a small fall in private non-residential investment.

The revised data confirmed a sharp drop in exports in the quarter, with net exports subtracting 0.3 percentage points from headline GDP growth, unchanged from the preliminary estimate. The GDP deflator, a broad measure of price pressures in the Japanese economy, rose 0.7 percent in the three months to June compared with the same period twelve months previously, compared with the earlier estimate of 0.8 percent, and down slightly from 0.9 percent in the three months to March.

Today's revised data confirm a significant slowdown in the Japanese economy from the pace set at the start of the year. This partly reflects one-off factors, including the impact of the extra day caused by the leap year and the earthquake in Kyushu in April. However, weaker growth in China and an uncomfortably strong currency are among several persistent factors that are weighing on the Japanese economy, and will add to pressure on officials to deliver additional policy stimulus.

Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

Gross domestic product is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.

The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components such as consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.