Jul-Sep 2016 1st Preliminary GDP Estimate

◆The real GDP growth rate for Jul-Sep 2016 (1st preliminary est) grew by +2.2% q/q annualized (+0.5% q/q), while considerably exceeding market consensus (+0.8% q/q annualized, +0.2% q/q). Looking at results by source of demand, we see that positive contributions came from growth in personal consumption, capex, housing investment, and exports, while declines were experienced in public investment and imports. (The decline in imports is a plus for overall GDP growth rate.) All in all, performance was favorable. However, caution is still required since the major source of growth was in overseas demand and the GDP deflator fell, causing the growth rate in nominal GDP to be smaller than real GDP.

◆Performance by demand component in the Jul-Sep 2016 results shows personal consumption up just a bit for the third consecutive quarter by +0.1% q/q, centering on durable goods. Housing investment grew for the second consecutive quarter at +2.3%. Capex continues to mark time at +0.0% q/q. Private sector inventory declined for the first time in two quarters at -0.1%pt making a negative contribution. Exports grew for the first time in two quarters at +2.0% q/q. As a result, overseas demand had a positive contribution of +0.5%pt to GDP.

◆We expect Japan’s economy to continue in a moderate expansion phase. However, domestic demand continues to lack strength, and with the absence of a clearly driving force in the economy, Japan may continue to face risk of a possible downturn in the future. As for overseas demand, the future of the world economy becomes increasingly uncertain with the election of Donald Trump to the US presidency. We therefore urge caution regarding possible downside risk.