| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| Quarter over Quarter | 0.9% | 0.5% to 1.0% | 1.5% | 0.7% | 0.9% |
| Annual Rate | 3.3% | 1.8% to 4.2% | 6.0% | 2.7% | 3.7% |
| Year over Year | 1.3% | 0.9% to 1.4% | 2.0% | 1.9% | 2.0% |
Highlights
Japan's gross domestic product for the April-June quarter posted a third straight quarterly rise, with the pace of increase accelerating to 1.5 percent on quarter, or an annualized 6.0 percent, as a sharp rebound in net exports, led by recovering auto exports and easing import costs, mitigated the effects of sluggish consumer spending and business investment, Cabinet Office data released Tuesday showed.
The preliminary data came in much stronger than the median economist forecast of 0.9 percent growth (forecasts ranged from 0.5 percent to 1.0 percent gains), or an annualized 3.3 percent expansion (1.8 percent to 4.2 percent).
It followed growth of 0.9 percent (revised up from 0.7 percent) on quarter, or an annualized 3.7 percent (revised from 2.7 percent) in January-March, on an unexpected surge in private-sector inventories, which topped resilient consumer spending as the largest factor to lead the growth.
The Econoday Consensus Divergence Index stood at plus 19, above zero, which indicates the Japanese economy is performing better than expected after outperforming with a smaller margin earlier. Excluding the impact of inflation, the index was at plus 25.
Japanese policymakers believe the economy still needs monetary and fiscal policy support for sustained growth with substantial wage hikes under stable 2 percent inflation.
Economic and Fiscal Policy Minister Shigeyuki Goto said in a statement that real GDP hit a record high level in April-June, backed by higher automobile production amid improving supply chains and a rebound in external demand due to spending by visitors from overseas. Private consumption posted its first drop in three quarters due to higher prices for food and appliances and despite recovery in spending services, he said.
"The economy is expected to show a moderate recovery," Goto said, noting the first increase in real compensation of employees in seven quarters amid high wage hikes for this fiscal year as well as solid demand for business investment.
"But we must keep a close watch on the effects of rising prices and downside risks to overseas economic," he said.
From a year earlier, the economy rose 2.0 percent in April-June (consensus was 1.3 percent), posting the ninth consecutive rise following a 2.0 percent rise (revised from 1.9 percent) in January-March.
Looking ahead, economic growth in July-September is expected to lose some steam in the face of slowing global demand and domestic labor shortages, but it is still likely to be shored up by solid consumer spending, thanks to widespread wage hikes and an expected sharp increase in summer bonuses.
The real annualized GDP amount rose to a record high ¥560.74 trillion in the April-June quarter from a revised ¥552.57 trillion in January-March. Those figures are above a revised ¥544.21 trillion seen in the January-March period of 2020, when the GDP grew 0.4 percent on quarter before the outbreak of the pandemic triggered a revised 7.9 percent slump in the following quarter.
In fiscal 2022 that ended in March, real GDP grew a revised 1.4 percent to ¥549.20 trillion, which was below the official forecast of a 1.7 percent rise. It followed a revised 2.7 percent gain to ¥541.74 trillion in fiscal 2021. The latest figure is still lower than ¥550.09 trillion in the pre-pandemic fiscal 2019.
Spending on Services Solid but Overall Consumption Down
Private consumption, which accounts for about 55 percent of GDP, fell 0.5 percent on quarter in the second quarter, coming in weaker than the median projection of a 0.1 percent increase (forecasts ranged from a 0.4 percent drop to a 0.3 percent gains). Elevated costs for daily necessities and durable goods weighed on many households. It is the first drop in three quarters following increases of 0.6 percent (revised from 0.5 percent) in the first quarter and 0.2 percent in the fourth quarter of 2022 and a slight decline (revised down to a 0.03 percent drop from a 0.1 percent rise) in the third quarter.
Consumption pushed down the GDP by 0.3 percentage point after making a positive 0.3 contribution to the total domestic output in the previous quarter.
In the second quarter, households trimmed spending on non-durable goods, such as food, beverages and soap, as suppliers continued to raise prices to reflect elevated import and production costs seen earlier. Expenditures on durable goods posted the first drop in four quarters as durable goods prices were also marked up and some households had already purchased cars and electric appliances earlier. The quarterly decline in those two categories more than offset modest gains in spending on semi-durable goods (including clothing, footwear and bags) and services.
In recent months, new vehicle sales have been recovering while spending on eating out and traveling has been robust thanks to widely eased Covid public health rules and the government's tourism subsidy program.
Domestic demand trimmed the Q2 GDP by 0.3 percentage point, more than the median forecast of a 0.1-point drop (forecasts ranged from a negative 0.3 point to a positive 0.3 point), after boosting Q1 growth by a revised 1.2 points. The decline was due to a fall in private consumption and a pullback in private inventories. The only positive contributions to domestic demand came from a sharp gain in housing investment and a solid rise in public works spending.
Capex Flat in Q2 after a Sharp Rebound in Q1
Business investment in equipment was flat (up a marginal 0.03 percent) on quarter in April-June, which was much weaker than the median forecast of a 0.6 percent rise (forecasts ranged from a 0.4 percent drop percent to a 1.7 percent rise). It followed an unexpected rebound, by 1.8 percent (revised up from a 1.4 percent rise), in January-March and a revised 0.7 percent drop in in October-December. Some firms remain cautious about implementing their plans, although capital investment is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
The Bank of Japan's quarterly Tankan business survey for June released last month showed both large and small firms revised up their combined plans for investment in equipment for fiscal 2023 that began on April 1, with major firms upgrading their plans more than expected and smaller firms less than forecast.
Net Exports Rebound as Imports Continue to Drop
Net exports of goods and services -- exports minus imports -- made a positive 1.8 percentage point contribution to the total domestic output, coming in much stronger than the median forecast of a 0.8-point rise (forecasts ranged from 0.4- to 1.3-point gains). In the previous quarter, the key measure of external demand pushed down the GDP by 0.3 point after raising it by a revised 0.3 point in the final quarter of 2022.
Japanese exports rebounded 3.2 percent on quarter in the April-June GDP, despite slow economic recovery in China, after posting their first drop in six quarters in January-March. Imports fell 4.3 percent for the third consecutive quarterly drop.
The number of visitors from other countries has continued to pick up since the government eased its Covid border control rules in October, leading to higher spending by foreign visitors, which is counted among exports of services, but exports of goods have been slower to recover, except for faster shipments of automobiles thanks to improving supply chains.
Private Inventories Trim GDP Growth, Public Works Spending Solid
Private sector inventories provided a negative 0.2-point contribution to the second quarter GDP, compared to the median forecast of a negative 0.3-point contribution (forecasts ranged from a 0.4-point drop to being flat), after pushing up the first quarter GDP by 0.4 percentage point.
Public works spending marked its fifth straight quarterly increase, up 1.2 percent on the quarter in April-June, which was largely in line with the median forecast of a 1.1 percent rise (forecasts ranged from 0.7 percent to 2.3 percent gains), backed by the supplementary budget for fiscal 2022 that ended in March. It followed an upwardly revised 1.7 percent rise in January-March. Public investment raised the second quarter GDP by 0.1 percentage point after a positive 0.1-point contribution to the GDP in the previous quarter.
The preliminary data came in much stronger than the median economist forecast of 0.9 percent growth (forecasts ranged from 0.5 percent to 1.0 percent gains), or an annualized 3.3 percent expansion (1.8 percent to 4.2 percent).
It followed growth of 0.9 percent (revised up from 0.7 percent) on quarter, or an annualized 3.7 percent (revised from 2.7 percent) in January-March, on an unexpected surge in private-sector inventories, which topped resilient consumer spending as the largest factor to lead the growth.
The Econoday Consensus Divergence Index stood at plus 19, above zero, which indicates the Japanese economy is performing better than expected after outperforming with a smaller margin earlier. Excluding the impact of inflation, the index was at plus 25.
Japanese policymakers believe the economy still needs monetary and fiscal policy support for sustained growth with substantial wage hikes under stable 2 percent inflation.
Economic and Fiscal Policy Minister Shigeyuki Goto said in a statement that real GDP hit a record high level in April-June, backed by higher automobile production amid improving supply chains and a rebound in external demand due to spending by visitors from overseas. Private consumption posted its first drop in three quarters due to higher prices for food and appliances and despite recovery in spending services, he said.
"The economy is expected to show a moderate recovery," Goto said, noting the first increase in real compensation of employees in seven quarters amid high wage hikes for this fiscal year as well as solid demand for business investment.
"But we must keep a close watch on the effects of rising prices and downside risks to overseas economic," he said.
From a year earlier, the economy rose 2.0 percent in April-June (consensus was 1.3 percent), posting the ninth consecutive rise following a 2.0 percent rise (revised from 1.9 percent) in January-March.
Looking ahead, economic growth in July-September is expected to lose some steam in the face of slowing global demand and domestic labor shortages, but it is still likely to be shored up by solid consumer spending, thanks to widespread wage hikes and an expected sharp increase in summer bonuses.
The real annualized GDP amount rose to a record high ¥560.74 trillion in the April-June quarter from a revised ¥552.57 trillion in January-March. Those figures are above a revised ¥544.21 trillion seen in the January-March period of 2020, when the GDP grew 0.4 percent on quarter before the outbreak of the pandemic triggered a revised 7.9 percent slump in the following quarter.
In fiscal 2022 that ended in March, real GDP grew a revised 1.4 percent to ¥549.20 trillion, which was below the official forecast of a 1.7 percent rise. It followed a revised 2.7 percent gain to ¥541.74 trillion in fiscal 2021. The latest figure is still lower than ¥550.09 trillion in the pre-pandemic fiscal 2019.
Spending on Services Solid but Overall Consumption Down
Private consumption, which accounts for about 55 percent of GDP, fell 0.5 percent on quarter in the second quarter, coming in weaker than the median projection of a 0.1 percent increase (forecasts ranged from a 0.4 percent drop to a 0.3 percent gains). Elevated costs for daily necessities and durable goods weighed on many households. It is the first drop in three quarters following increases of 0.6 percent (revised from 0.5 percent) in the first quarter and 0.2 percent in the fourth quarter of 2022 and a slight decline (revised down to a 0.03 percent drop from a 0.1 percent rise) in the third quarter.
Consumption pushed down the GDP by 0.3 percentage point after making a positive 0.3 contribution to the total domestic output in the previous quarter.
In the second quarter, households trimmed spending on non-durable goods, such as food, beverages and soap, as suppliers continued to raise prices to reflect elevated import and production costs seen earlier. Expenditures on durable goods posted the first drop in four quarters as durable goods prices were also marked up and some households had already purchased cars and electric appliances earlier. The quarterly decline in those two categories more than offset modest gains in spending on semi-durable goods (including clothing, footwear and bags) and services.
In recent months, new vehicle sales have been recovering while spending on eating out and traveling has been robust thanks to widely eased Covid public health rules and the government's tourism subsidy program.
Domestic demand trimmed the Q2 GDP by 0.3 percentage point, more than the median forecast of a 0.1-point drop (forecasts ranged from a negative 0.3 point to a positive 0.3 point), after boosting Q1 growth by a revised 1.2 points. The decline was due to a fall in private consumption and a pullback in private inventories. The only positive contributions to domestic demand came from a sharp gain in housing investment and a solid rise in public works spending.
Capex Flat in Q2 after a Sharp Rebound in Q1
Business investment in equipment was flat (up a marginal 0.03 percent) on quarter in April-June, which was much weaker than the median forecast of a 0.6 percent rise (forecasts ranged from a 0.4 percent drop percent to a 1.7 percent rise). It followed an unexpected rebound, by 1.8 percent (revised up from a 1.4 percent rise), in January-March and a revised 0.7 percent drop in in October-December. Some firms remain cautious about implementing their plans, although capital investment is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.
The Bank of Japan's quarterly Tankan business survey for June released last month showed both large and small firms revised up their combined plans for investment in equipment for fiscal 2023 that began on April 1, with major firms upgrading their plans more than expected and smaller firms less than forecast.
Net Exports Rebound as Imports Continue to Drop
Net exports of goods and services -- exports minus imports -- made a positive 1.8 percentage point contribution to the total domestic output, coming in much stronger than the median forecast of a 0.8-point rise (forecasts ranged from 0.4- to 1.3-point gains). In the previous quarter, the key measure of external demand pushed down the GDP by 0.3 point after raising it by a revised 0.3 point in the final quarter of 2022.
Japanese exports rebounded 3.2 percent on quarter in the April-June GDP, despite slow economic recovery in China, after posting their first drop in six quarters in January-March. Imports fell 4.3 percent for the third consecutive quarterly drop.
The number of visitors from other countries has continued to pick up since the government eased its Covid border control rules in October, leading to higher spending by foreign visitors, which is counted among exports of services, but exports of goods have been slower to recover, except for faster shipments of automobiles thanks to improving supply chains.
Private Inventories Trim GDP Growth, Public Works Spending Solid
Private sector inventories provided a negative 0.2-point contribution to the second quarter GDP, compared to the median forecast of a negative 0.3-point contribution (forecasts ranged from a 0.4-point drop to being flat), after pushing up the first quarter GDP by 0.4 percentage point.
Public works spending marked its fifth straight quarterly increase, up 1.2 percent on the quarter in April-June, which was largely in line with the median forecast of a 1.1 percent rise (forecasts ranged from 0.7 percent to 2.3 percent gains), backed by the supplementary budget for fiscal 2022 that ended in March. It followed an upwardly revised 1.7 percent rise in January-March. Public investment raised the second quarter GDP by 0.1 percentage point after a positive 0.1-point contribution to the GDP in the previous quarter.
Market Consensus Before Announcement
Japan's economy is expected to post a third straight quarterly growth in the April-June quarter, with the pace of increase accelerating to 0.9 percent on quarter (an annualized rate of 3.3 percent) from 0.7 percent (2.7 percent) in January-March.
Solid net exports -- led by recovering auto exports on improved supply chain, strong inbound spending and falling energy import costs -- are estimated to have pushed up the second-quarter real GDP by 0.8 percentage point while domestic demand is seen nearly flat, making a negative 0.1-point contribution (some forecast a slight positive contribution).
Private consumption is forecast to have fizzled to just a 0.1 percent rise in the second after a 0.5 percent increase in the first quarter. Business investment in equipment also appeared to have lost some steam, slowing to a 0.6 percent rise from a 1.4 percent climb. Public works spending is seen up a solid 1.1 percent after a 1.5 percent gain.
Private inventories are expected to trim overall growth by 0.3 point after adding an unexpectedly high 0.4 point in the first three months of the year.
Solid net exports -- led by recovering auto exports on improved supply chain, strong inbound spending and falling energy import costs -- are estimated to have pushed up the second-quarter real GDP by 0.8 percentage point while domestic demand is seen nearly flat, making a negative 0.1-point contribution (some forecast a slight positive contribution).
Private consumption is forecast to have fizzled to just a 0.1 percent rise in the second after a 0.5 percent increase in the first quarter. Business investment in equipment also appeared to have lost some steam, slowing to a 0.6 percent rise from a 1.4 percent climb. Public works spending is seen up a solid 1.1 percent after a 1.5 percent gain.
Private inventories are expected to trim overall growth by 0.3 point after adding an unexpectedly high 0.4 point in the first three months of the year.
Definition
Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.
Description
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.
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.
