Japan Economic Forecast

GDP soared 6.0% in seasonally adjusted annualized terms in Q2, according to a preliminary estimate. The acceleration far outpaced market expectations as tourism led to a surge in exports. Foreign arrivals recovered to over 70% of pre-pandemic levels in June, in part thanks to the easing of border restrictions in April. That said, private spending, which makes up around 60% of Japan’s GDP, contracted 2.1% as the post-pandemic spurt in spending lost steam. With export growth normalizing and private spending remaining weak, our panelists expect GDP growth to cool to 0.2% in Q3. Business activity rose less in July–August than in Q2, and while the volume of goods exports rose more in July than in Q2, momentum has likely slowed since. In other news, according to recent media reports, the government will introduce new economic stimulus measures in September, likely centered around boosting wages and encouraging investment in new technology.

Inflation was steady at June’s 3.3% in July, while core inflation inched down to 3.1% from 3.2%. Our panelists see inflation cooling more this year on a tougher base effect but still averaging above the BoJ’s 2.0% target until Q2 2024. Price pressures will be supported by high energy prices and a rise in wage growth following this year’s wage negotiations.