Oct-Dec 2016 1st Preliminary GDP Estimate

◆The real GDP growth rate for Oct-Dec 2016 (1st preliminary est) grew by +1.0% q/q annualized (+0.2% q/q), coming in pretty much according to market consensus (+1.0% q/q annualized, +0.3% q/q). Looking at results by source of demand, we see that positive contributions came from growth in capex, housing investment, government consumption, exports, and imports (note: growth in imports is a negative contribution to growth rate). Meanwhile, declines were experienced in personal consumption, public investment, and fluctuations in private sector inventory. All in all, performance was favorable, with the deflator increasing the extent to which it has expanded. However, caution is still required since the major source of growth was in overseas demand with domestic demand contributing -0.0%pt, and rising import prices caused terms of trade to deteriorate, hence caution is required.

◆Performance by demand component in the Oct-Dec 2016 results shows private sector final consumption expenditure down just slightly for the first time in four quarters by -0.0% q/q. Housing investment grew for the fourth consecutive quarter at +0.2% due to last-minute demand which developed on the assumption that the consumption tax would again be increased in April of 2017, but it appears to be nearing the end of its growth phase. Capital expenditure on the part of private sector corporations is maintaining a firm undertone despite ups and downs at +0.9% q/q due to the high level of corporate earnings. Private sector inventory declined just slightly for the second consecutive quarter at -0.1%pt, making a negative contribution to GDP. Exports won major growth at +2.6% q/q, while imports also grew by +1.3%. As a result, the contribution of overseas demand to GDP hit +0.2%pts.

◆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 US going through changes in its trade policy. We therefore urge caution regarding possible downside risk.