Jan-Mar 2015 1st Preliminary GDP Estimate

◆The real GDP growth rate for Jan-Mar 2015 (1^st preliminary est) grew by +2.4% q/q annualized (+0.6% q/q). This is the second consecutive quarter of growth in GDP, and reconfirms that the economy is back on track and in a moderate growth phase. First quarter results were positive on three major points: (1) The pace of economic growth has accelerated in comparison to the previous quarter, (2) Performance exceeded market consensus (+1.6% q/q annualized and +0.4% q/q), and (3) Capital spending (capex), which had been in a downtrend until now, achieved a turnaround in the positive direction.

◆The real GDP growth rate on an annualized basis in FY2014 declined by -1.0%, the first decline in growth in five years (since FY2009). This was due to the downward pressure brought on the economy by the increase in consumption tax in April of that year. As of January 2014 before the consumption tax was raised, outlooks from various sources including the government, the Bank of Japan, and private sector economists, was for positive growth, but the effects of the increase in consumption tax were much larger than expected, ultimately resulting in a major downturn in the economy.

◆Performance by demand component in the Jan-Mar 2015 results shows personal consumption up +0.4% q/q, its third consecutive quarter of growth, continuing in a moderate growth trend. Real employee compensation was up by +0.6% q/q for the third consecutive quarter, due to improvements in household employment and income environments, and contributing also to growth in personal consumption. In previous forecasts many sources expected the pace of growth in personal consumption to slow down in comparison with the FY2014 Oct-Dec results (+0.4%), but the firm undertone continued thanks to gains in all personal consumption sectors, including goods and services.

◆Japan’s economy is expected to continue growing at a moderate pace in the future. We expect real GDP to continue this growth trend during the Apr-Jun 2015 period and beyond. We also see personal consumption continuing in a moderate growth trend, and capex to move unambiguously toward a comeback. As for personal consumption, the positive environment for households in the areas of employment and income is expected to lead to an improvement in the propensity to consume, and this will be the major impetus in the continuation of the growth trend.