Apr-Jun 2015 1st Preliminary GDP Estimate

◆The real GDP growth rate for Apr-Jun 2015 (1st preliminary est) declined by -1.6% q/q annualized (-0.4% q/q). Meanwhile, market consensus was down by -1.8% q/q annualized (-0.5% q/q).This is the first time in three quarters for real GDP to experience a decline. The decline was due to weak results for exports and personal consumption, and considering the extent to which the real GDP growth rate fell, it is likely that Japan’s economy is now marking time, and has entered a temporary lull.

◆Performance by demand component in the Apr-Jun 2015 results shows personal consumption down -0.8% q/q, its first decline in four quarters. Looking at personal consumption by category, we see that consumption was weak overall, with negative numbers in all goods and services. Capex was down a small amount by -0.1% q/q for the first time in three quarters, apparently taking a short break from the recent growth trend. Exports suffered a decline for the first time in six quarters at -4.4% q/q. A decline in exports to both the US and Asia are seen as having contributed to downward pressure on performance.

◆Our basic economic scenario sees Japan’s economy gradually making a comeback, avoiding any truly adverse situations. We expect real GDP to improve with personal consumption and exports moving into a growth trend, and capex to gradually make a comeback. We expect the economy to return to a positive growth trend in the Jul-Sep 2015 period. However, there is a certain amount of risk that real GDP could move into a downtrend for the time being. We suggest keeping an eye on the trend in inventory adjustment. As for exports, be on the lookout for the following: there remains some risk that US capital spending could continue its downtrend due to weak corporate earnings, while the slowdown in the Chinese economy could continue unabated for some time.