Tue Nov 14 17:50:00 CST 2017

Consensus Actual Previous
Quarter over Quarter 0.4% 0.3% 0.6%
Q/Q change - SAAR 1.6% 1.4% 2.5%
Year over Year 1.7% 1.4%

Japan's GDP grew by 0.3 percent on the quarter in the three months to September according to preliminary estimates, down from growth of 0.6 percent in the three months to June (revised down from the initial estimate of 1.0 percent), and falling short of the consensus forecast of 0.4 percent. This gives an annualised growth rate of 1.4 percent for the three months to September, below the consensus forecast of 1.6 percent, and down from 2.5 percent in the three months to June (revised from an initial estimate of 4.0 percent).

In year-on-year original terms, GDP advanced by 1.7 percent in the three months to September, compared with an increase of 1.4 percent in the three months to June (revised from 2.0 percent).

Private consumption was the expenditure component mainly responsible for weaker headline GDP growth in the three months to September. This contracted by 0.5 percent on the quarter, largely reversing an increase of 0.7 percent in the three months to June and making a negative contribution to headline GDP growth of 0.3 percentage points. Other major components of domestic demand were also weak, with private non-residential investment up 0.2 percent on quarter but making zero contribution to headline GDP growth, and total government spending falling by 0.6 percent on the quarter and making a negative contribution of 0.1 percentage points. This weakness in domestic sources of growth was partly offset by a rebound in external demand, with exports up 1.5 percent on the quarter after falling by 0.2 percent in the three months to June. This resulted in net exports making a positive contribution of 0.5 percentage points to headline GDP growth.

Revised GDP estimates for this quarter, incorporating more comprehensive information, will be published next month. If this confirms positive GDP growth in the three months to September, Japan's current economic expansion will have extended to seven consecutive quarters, its longest uninterrupted period of positive growth since 2005 and 2006.

Although consumer spending fell in the three months to September, this is the first quarterly fall since the end of 2015 and may partly have reflected the impact of adverse weather. Subsidies for fuel-efficient cars may also have "brought forward" some spending into the previous quarter when consumer spending was relatively strong.

With net exports picking up the slack in the last quarter, officials at the Bank of Japan are likely to retain their assessment that the Japanese economy will "expand moderately" in coming quarters. The BoJ's median forecast for real GDP growth is 1.9 percent for the current fiscal year starting April 2017, 1.4 percent for the fiscal year starting April 2018, and 0.7 percent for the fiscal year starting April 2019.

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.