Jan-Mar 2016 1st Preliminary GDP Estimate

◆The real GDP growth rate for Jan-Mar 2016 (1^st preliminary est) grew by +1.7% q/q annualized (+0.4% q/q), and exceeded market consensus as well (+0.3% q/q annualized, +0.1% q/q). This is the first time in two quarters for real GDP to achieve growth. However, considering the fact that some of this growth is due to extra business days gained in the leap year, we would have to conclude that real GDP gained only slightly, or is actually marking time. All in all, results went according to the DIR outlook, with Japan’s economy remaining in a lull.

◆Performance by demand component in the Jan-Mar 2016 results shows personal consumption up for the first time in two quarters by +0.5% q/q. However, our assessment is that it is actually marking time if we remove the increase gained from extra business days due to the leap year. Our assessment is that personal consumption remains stagnant. Housing investment declined for the second consecutive quarter at -0.8%. Capex declined for the first time in three quarters at -1.4% q/q, apparently taking a breather from its overall growth trend. While the extent of contribution of private sector inventory growth was slight at -0.0%pt, the final contribution was down for the third consecutive quarter. Meanwhile, exports grew for the first time in two quarters at +0.6% q/q. As for exports of goods, trade with both the EU and the US grew, bringing a positive contribution.

◆Although personal consumption is expected to continue its underlying strength due to improvements in the employment and income environment, the absence of a clearly driving force in the economy colors our basic economic scenario, which sees Japan’s economy continuing to face risk of a possible downturn in the future. We urge caution regarding lingering risk factors which could have a negative impact 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. In addition, one should keep in mind the possible fluctuations in the economy which could occur due to the effects of the recent earthquake in Kumamoto.