Apr-Jun 2017 1st Preliminary GDP Estimate

◆The real GDP growth rate for Apr-Jun 2017 (1st preliminary est) grew by +4.0% q/q annualized (+1.0% q/q), exceeding market consensus (+2.4% q/q annualized, +0.6% q/q). All major domestic demand related GDP components exhibited growth, including personal consumption, capex, housing investment, government consumption, and public investment. On the other hand, contribution from overseas demand, which led growth throughout CY2016 fell for the first time in seven quarters by -0.3%pt q/q. Meanwhile, terms of trade improved due to import prices settling down somewhat, and the GDP deflator grew for the first time in two quarters (+0.2% q/q) as a result of moderate progress in domestic price pass-through. Nominal GDP grew for the first time in two quarters by +4.6% q/q annualized (+1.1% q/q).

◆We expect Japan’s economy to continue in a moderate expansion phase. Domestic demand is expected to continue its expansion centering on personal consumption, while overseas demand is expected to maintain steady growth backed by the recovery in the world economy, providing support for Japan’s economic growth. However, downside risk remains for overseas demand requiring caution, due to fears that China’s economy may slow down after the National Congress of the Communist Party in fall, and increased geopolitical risk. Meanwhile, we also urge caution regarding the slowdown of the US economy accompanying the Fed’s tight money policy, and the problem of capital outflows from the emerging nations. Domestic demand components are expected to lead growth in the future. Until now the driving force behind Japan’s economic growth was overseas demand, but there is a very good chance that this role is now shifting to domestic demand.