Apr-Jun 2014 1st Preliminary GDP Estimate

◆The real GDP growth rate for Apr-Jun 2014 (1^stpreliminary est) declined by -6.8% q/q annualized (-1.7% q/q), recording negative growth for the first time in two quarters. Performance was in line with market consensus (-7.0% q/q annualized and - 1.8% q/q). The primary reason for the major decline in real GDP was the reactionary decline in personal consumption following the raising of the consumption tax in April.

◆The decline in personal consumption was expected, but the extent of the decline (-5.0% q/q) came as a surprise, bringing a somewhat negative tone to the results. On the other hand, contribution of inventory investment rose considerably in comparison to the previous period by +1.0%pt, bringing the overall GDP figures back in line with previous expectations. Regarding the huge increase in inventory investment, this is considered to be partly an attempt to recover inventory levels after the temporary decline experienced as a result of last minute demand prior to the April tax hike, though the decline in domestic demand cannot be ignored as another major cause, hence this is not necessarily a positive element.

◆As for the outlook for the Japanese economy, the period of Jul-Sep 2014 is expected to see a comeback in GDP, with a continuation of economic expansion foreseen. A great deal of attention will be drawn to the announcement of Jul-Sep 2014 period GDP figures to be announced in mid-November. This is because of the great weight they are expected to carry in determining whether or not to increase the consumption tax yet again (next hike planned in October 2015). Chances are good that GDP figures will return to positive growth during the Jul-Sep period.