Apr-Jun 2015 2nd Preliminary GDP Estimate

◆The real GDP growth rate for Apr-Jun 2015 (2^nd preliminary est) was revised upwards to -1.2% q/q annualized (-0.3% q/q) in comparison to the 1^st preliminary report (-1.6% q/q annualized and -0.4% q/q). Results also exceeded market consensus at -1.6% q/q annualized (-0.4% q/q). The fact that results exceeded market consensus is attributed to the extent to which inventory investment was revised upwards, coming in well above original expectations. Our comprehensive assessment of this modest revision of the real GDP growth rate is that the 2^nd preliminary estimate confirms our previous opinion that Japan’s economy is in a temporary lull due to weak exports and consumption. With inventories accumulating to an extent which was previously unexpected and capex receiving a downward revision, the substance of this revision does not look good.

◆Performance by demand component in the revised Apr-Jun 2015 results shows capex suffering a downward revision, but inventory investment getting a larger upward revision than was originally expected, thereby providing some upward pressure to overall results. The results of corporate statistics  brought capex investment down by -0.9% q/q, a downward revision in comparison to the 1^st preliminary GDP estimate (-0.1%). Meanwhile inventory investment grew by +0.3%pt q/q, an upward revision from the 1^st preliminary’s +0.1%pt, exceeding market consensus by +0.2%pt q/q. Looking at inventory investment by category we see that all four major categories were revised upwards, with inventory growth seen in three areas – finished goods, raw materials, and distribution inventory. It should be noted, however, that there are recent signs of inventory accumulating.