Japan Economic Outlook
In a recent second release, quarter-on-quarter annualized GDP growth for Q2 was revised down to 4.8% from 6.0% in the first release. The downgrade was greater than the market had expected, with private spending contracting slightly more than originally estimated. Separate data showed that real wages fell 2.5% in the quarter, likely explaining the slowdown in consumer demand. That said, the 4.8% figure was still strong—the highest in a year—thanks to a surge in exports. Turning to Q3, our panelists expect GDP to broadly stagnate. Catch-up growth from the pandemic has now been largely exhausted; supply has caught up with demand, according to recently released figures from the Cabinet Office. In addition, after surging in Q2, exports are likely to normalize in Q3; in July–August, goods exports were down slightly compared to Q2.
Inflation dipped to 3.2% in August from 3.3% in July, while core inflation inched down to 3.0% from 3.1%. Our panelists see inflation easing from current levels ahead on a tougher base effect, but still averaging above the 2.0% target of the Bank of Japan (BOJ) until Q2 2024. Inflation will be supported by elevated energy prices and a rise in wage growth.