Oct-Dec 2015 1st Preliminary GDP Estimate

◆The real GDP growth rate for Oct-Dec 2015 (1^st preliminary est) declined by -1.4% q/q annualized (-0.4% q/q), falling just below market consensus as well (-1.3% q/q annualized (-0.3% q/q), though this fell within expectations. This is the first time in two quarters for GDP to record negative growth. Capex continued its comeback, but personal consumption, housing investment, inventory investment, and exports suffered declines, bringing downward pressure on overall results. All in all, these results indicate that Japan’s economy remained in a lull during the fourth quarter as our previous outlook suggested.

◆Performance by demand component in the Oct-Dec 2015 results shows personal consumption down by -0.8% q/q, the first time it has declined in two quarters. Though real employee compensation maintained a strong undertone such that the employment and income environment contributed a plus, households continued to be more budget minded, while the unseasonably warm winter took a bite out of sales of cold weather products, including clothing, heating equipment, and energy, thus bringing down overall performance. Capex rose by +1.4% q/q, its second consecutive quarter of growth, in a continuation of its comeback. Private sector inventory was down for the second consecutive quarter at -0.1% pt, contributing to this period’s decline in real GDP. Meanwhile, exports declined for the first time in two quarters at -0.9% q/q.

◆Due to the absence of a clearly driving force, our basic economic scenario sees Japan’s economy facing risk of a possible downturn in the future. We urge caution regarding the rapid increase in risk factors in recent weeks which could have a negative effect on Japan’s economy, especially the downturn in the Chinese economy, turmoil in the global financial markets in response the US exit strategy, and a strong yen / weak stock market situation brought on by risk-off behavior of investors. We also note that GDP statistics do not make adjustments for the leap year, hence the Jan-Mar 2016 period figures could be on the strong side due to the extra day in comparison to February of the previous year.