Jan-Mar 2014 2nd Preliminary GDP Estimate

◆The real GDP growth rate for Jan-Mar 2014 (2^nd preliminary est) was revised upwards from the preliminary est, recording +6.7% q/q annualized as compared to the preliminary figures (+5.9% q/q annualized). The 2^nd preliminary figures also exceeded market consensus (up 5.6% q/q annualized), due mainly to the upward revision of capex, which exceeded earlier expectations – all in all a positive report. At the same time, private sector inventories were revised downwards considerably. However, the sharp decline was due to last minute demand prior to the increase in consumption tax, hence these figures should not be taken negatively.

◆As for the outlook for the Japanese economy, the period of Apr-Jun 2014 is likely to see declines in personal consumption and housing investment for the first time in 7 quarters. However the reactionary decline occurring after the last minute demand prior to the increase in consumption tax is seen as having hit bottom in April, and are expected to begin easing up. Therefore possibilities are good that personal consumption will enter a growth trend in q/q terms by the Jul-Sep quarter. Meanwhile, exports are expected to grow as overseas economies, led by the U.S., continue to expand, and as Japan improves its global competitiveness thanks to the weak yen. Increasing exports will lead to production growth and improved earnings, and this is expected to trigger more capex. Hence we believe the Japanese economy will be back on the growth track by the Jul-Sep 2014 period.