November 13, 2016 05:50 CST

Consensus Actual Previous Revised
Quarter over Quarter 0.3% 0.5% 0.2%
Q/Q change - SAAR 1.0% 2.2% 0.7%
Year over Year 0.8% 0.8% 0.7%

Japan's GDP increased by 0.5 percent quarter-on-quarter in the three months to September, according to preliminary estimates, up from 0.2 percent in the three months to June, and significantly stronger than the consensus forecast of 0.3 percent. This gives an annualised rate of 2.2 percent for the three months to September, up from 0.7 percent in the three months to June, and again well above the consensus forecast of 1.0 percent. Final estimates will be published next month.

In year-on-year terms, GDP increased by 0.8 percent in the three months to September, compared with an increase of 0.7 percent in the three months to June.

The quarter-on-quarter growth seen in Japan's GDP in the three months to September was largely driven by external demand, with net exports making a positive contribution to headline growth of 0.5 percentage points. This represents a major rebound from the three months to June, when net exports made a negative contribution to GDP growth of 0.2 percentage points.

This improvement in external demand, however, was offset by weak private domestic demand, which made a zero contribution to headline GDP growth. Private consumption grew by 0.1 percent on the quarter, broadly consistent with monthly retail sales data showing an increase in July but a big fall in August and then zero growth in September, in part reflecting the impact of severe typhoons during those last two months. Private investment was flat in the three months to September, though this represents an improvement from the falls that were recorded in the two previous quarters.

Public demand also made a zero contribution to headline growth in the quarter, with stronger government consumption spending offset by a drop in government investment spending.

Revised GDP estimates for this quarter, incorporating more comprehensive information, will be published next month. Initial estimates for the three months to June showed zero growth in GDP that quarter, but this was subsequently revised up to growth of 0.2 percent when final estimates were published a few weeks later. GDP growth in the three months to March was also revised from a primary estimate of 0.4 percent to a final estimate of 0.5 percent.

Japan's economy has now recorded positive GDP growth for each of the last three quarters, with the annualised quarterly growth rate picking up to its fastest pace since the start of 2015. Growth would likely have been stronger if not for the impact of typhoons, suggesting there may be some upside for domestic activity, particularly for private consumption, in the current quarter.

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.