Second Preliminary Estimate of 4Q 2012 GDP

◆In the second preliminary estimate of Oct-Dec (4Q) 2012 GDP (Cabinet Office), real GDP was flat q/q, annualized at +0.2%, posting an upgrade from the first preliminary estimate (down 0.1%; down 0.4%), and almost on par with the market consensus (up 0.1%; up 0.2%). A broad range of GDP components (incl. capex, public works spending, personal consumption) saw upgrades.

◆Industrial production is likely to see the first q/q gain in four quarters in Jan-Mar 2013, as February and March production is projected to increase m/m (Indexes of Industrial Production; Ministry of Economy, Trade, and Industry). Given the close relationship with industrial production, real GDP will likely show significant positive growth in Jan-Mar 2013.

◆While whether the economy sees a stable recovery after Jan-Mar will depend on export trends, such trends will likely gradually increase going forward, given that the environment for exports has begun to turn around amid a recovery in overseas economies and improvement in price competitiveness triggered by the shift to a weaker yen. Higher exports will not only push up corporate earnings, which will in turn induce capex, but also improve the household income environment, which will encourage personal consumption. In addition, public works spending should accelerate the ongoing uptrend, spurred by government economic measures. We expect that after the short-term doldrums that started in early 2012, the economy will turn around to an expansionary phase from Jan-Mar 2013.