Jan-Mar 2017 1st Preliminary GDP Estimate

◆The real GDP growth rate for Jan-Mar 2017 (1st preliminary est) grew by +2.2% q/q annualized (+0.5% q/q), exceeding market consensus (+1.8% q/q annualized, +0.4% q/q). Almost all major GDP components exhibited growth, including personal consumption, capex, housing investment, public investment, government consumption, private sector inventory, exports, and imports (note: growth in imports is a negative contribution to growth rate). Performance was positive overall, and growth was led notably by domestic demand (contribution was +0.4% q/q). Meanwhile, terms of trade deteriorated due to growth in import prices, and the GDP deflator declined as a result.

◆Current results show the FY2016 GDP growth rate to have accelerated in comparison to FY2015, with y/y growth at +1.3%. Until now the driving force behind Japan’s economic growth was overseas demand (y/y contribution to GDP growth rate +0.8%pt), but domestic demand has also recorded favorable growth, centering on personal consumption, capex, and housing investment. On the other hand, private sector inventory declined to -0.3%pt y/y, and public investment continues on the low side declining by -3.2%. The GDP deflator declined by -0.2%, dragged down by the slow performance of the domestic demand deflator at -0.4%. This brings the nominal GDP growth rate to +1.2%.

◆We expect Japan’s economy to continue in a moderate expansion phase. Domestic demand is expected to maintain favorable performance despite ups and downs, while overseas demand is expected to expand due to recovery in the world economy, providing major support for Japan’s economic growth. However, downside risk remains for overseas demand requiring caution due to US trade policy and rising geopolitical risk. Meanwhile, we also urge caution regarding rising interest rates accompanying the slowdown of the US economy, and the problem of capital outflows from the emerging nations.