Japan: Most recent data corroborate Q4's GDP slump

Revised data confirmed that Japan is far from achieving a suitable growth path as household spending is failing to support the economy and exports remain depressed amid subdued global demand, mainly from China. Against this backdrop, the possibility of the Bank of Japan (BoJ) triggering its bazooka again in the coming months and further fiscal stimulus from the government have to be priced in. GDP fell 1.1% in Q4 over the previous quarter in seasonally adjusted annualized terms (SAAR), according to new data released on 8 March. The reading was a notch above the 1.4% drop reported in the first release and represented a reverse from the 1.4% expansion tallied in Q3. On an annual basis, economic activity rose 0.7% in Q4. While the print was up from the 0.5% increase tallied in the first estimate, it marked a deceleration over Q3’s 1.7% expansion.

The upwardly revised figure showed that investment in private non-residential investment fared better than in the previous estimate report (first estimate: +5.7% quarter-on-quarter SAAR; second estimate: +6.3% qoq SAAR), while the contribution to growth from the external sector was broadly stable. The drop in private consumption was nearly unchanged compared to the initial report (first estimate: -3.3% qoq SAAR; second estimate: -3.4% qoq SAAR), while government spending accelerated slightly to 2.4% (first estimate: +2.1% qoq SAAR).

The BoJ expects the economy to expand between 1.0% and 1.7% in fiscal year 2016, which ends in March 2017. In the subsequent fiscal year, the BoJ sees GDP growth of between 0.1% and 0.5%. FocusEconomics Consensus Forecast panelists see GDP expanding 1.0% in calendar year 2016, which is unchanged from last month’s projection. In 2017, the panel sees the economy growing 0.7%.