The second reading of Japan's GDP data confirmed that the wobbly domestic economy posted its first contraction in four quarters in the January-March period, but the decline was smaller than preliminary reading as private consumption was slightly better than being flat and the buildup in private-sector inventories was much larger than initially calculated. The Q1 drop was revised up to be -0.04% (officially -0.0%), or an annualized -0.2%, from the initial estimate of -0.2% (-0.7% annualized).

The preliminary Q1 GDP data released last month showed the slump was in payback for a technical jump in net exports in the previous quarter. It was also due to flat consumption amid high costs of living and the uncertainty over global growth and inflation triggered by the protectionist U.S. trade policy.

The GDP slip followed a 0.6% rise (the annual rate revised down to +2.2% from +2.4%) in the October-December quarter, when the solid growth was led by a technical rebound in net exports that was caused by a sharper-than-expected slump in imports and masks weak exports and domestic demand. It also came after the U.S. economy recorded its first contraction in three years in Q1 following a solid expansion in Q4 led by rush imports ahead of stiff Trump tariffs.

In the revised Q1 GDP data, domestic demand provided a positive 0.8 percentage point contribution (revised up from +0.7 point) to total domestic output in Q1. It was propped up by a 1.1% rise in capex (vs. an initial +1.4%) and a rise in private-sector inventories (+0.6 point, revised up from +0.3 point). Domestic demand trimmed Q4 GDP by 0.2 point and raised Q3 growth by 0.5 point. By contrast, external demand (exports minus imports) lowered the Q1 GDP by 0.8 point, as reported last month, after adding 0.7 point to the growth in the previous quarter.

Looking ahead, Japan's economic performance in the April-June quarter is expected to remain subdued, likely marking the second straight contraction, as consumers stay frugal amid falling real wages, external demand remains uncertain and firms are still cautious about implementing their solid capex plans amid the global trade war instigated by the Trump administration.

Key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Preliminary figures are in parentheses.

GDP q/q: -0.0% (-0.2%); 1st drop in 4quarters
GDP annualized: -0.2% (-0.7%); 1st drop in 4quarters
GDP y/y: +1.7% (+1.7%); 3rd straight rise
Domestic demand: +0.8 point (+-0.7 point); 1st rise in 2quarters
Private consumption: +0.1% (+0.0%); flat after third rise in a row
Business investment: +1.1% (+1.4%); 4th straight rise
Public investment: -0.6% (-0.4%); 3rd straight drop
Private inventories: +0.6 point (+0.3 point); 1st rise in 2 quarters
Net exports (external demand): -0.8 point (-0.8 point), 1st drop in 2 quarters

The second reading of Japan’s GDP data is expected to confirm that the wobbly domestic economy posted its first contraction in four quarters in the January-March period, down a slight 0.2% on quarter, or an annualized 0.7%, likely showing only limited revisions to the initial estimate of -0.2% (-0.7% annualized). The preliminary Q1 GDP data released last month showed the slump was in payback for a technical jump in net exports in the previous quarter. It was also due to flat consumption amid high costs of living and the uncertainty over global growth and inflation triggered by the protectionist U.S. trade policy.

The GDP slip followed the 0.6% rise (annualized 2.4%) in the October-December quarter, when the solid growth was led by a technical rebound in net exports that was caused by a sharper-than-expected slump in imports and masks weak exports and domestic demand. It also came after the U.S. economy recorded its first contraction in three years in Q1 following a solid expansion in Q4 led by rush imports ahead of stiff Trump tariffs.

In the revised Q1 GDP data, domestic demand is forecast to have provided a positive 0.6 percentage point contribution (revised down from +0.7 point) to total domestic output in Q1, propped up by a 1.2% rise in capex (vs. an initial +1.4%) and a rise in private-sector inventories (+0.3 point). Domestic demand trimmed Q4 GDP by 0.1 point and raised Q3 growth by 0.5 point. By contrast, external demand (exports minus imports) is believed to have lowered the Q1 GDP by 0.8 point, as reported last month, after adding 0.7 point to the growth in the previous quarter.

Looking ahead, Japan's economic performance in the April-June quarter is expected to remain subdued, likely marking the second straight contraction, as consumers stay frugal amid falling real wages, external demand remains uncertain and firms are still cautious about implementing their solid capex plans amid the global trade war instigated by the Trump administration.

Consensus forecasts for key components in percentage change on quarter except for private inventories and net exports, whose contributions are in percentage points. Preliminary figures are in parentheses.

GDP q/q: -0.2% (-0.2%); 1st drop in 4quarters
GDP annualized: -0.7% (-0.7%); 1st drop in 4quarters
GDP y/y: +1.7% (+1.7%); 3rd straight rise
Domestic demand: +0.6 point (+-0.7 point); 1st rise in 2quarters
Private consumption: +0.0% (+0.0%); flat after third rise in a row
Business investment: +1.2% (+1.4%); 4th straight rise
Public investment: +0.4% (-0.4%); 1st rise in 3 quarters vs. 3rd straight drop
Private inventories: +0.3 point (+0.3 point); 1st rise in 2 quarters
Net exports (external demand): -0.8 point (-0.8 point), 1st drop in 2 quarters

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.