Japan Private Consumption (ann. var. %)

Private Consumption in Japan

GDP records quickest upturn since Q2 2022 in Q1

GDP increased 1.6% in seasonally adjusted annualized terms (SAAR) in Q1, according to a preliminary reading by the statistical office. Q1’s reading marked the best result since Q2 2022 and exceeded market expectations. The statistical office also revised down GDP figures for Q4, with the economy having contracted 0.1% in SAAR terms in the fourth quarter.

Private consumption improved to 2.4% SAAR in the first quarter, which marked the best reading since Q2 2022 (Q4 2022: +0.8% SAAR) and was boosted by the easing of pandemic restrictions. Government spending, meanwhile, flatlined (Q4 2022: +0.8% SAAR). Additionally, fixed investment bounced back, growing 4.6% in Q1, contrasting the 1.5% decrease in the prior quarter.

On the external front, exports of goods and services fell 15.6% in Q1, marking the worst result since Q2 2020 (Q4 2022: +8.4% SAAR) and marking the first contraction in six quarters. In addition, imports of goods and services fell at a sharper rate of 9.0% in Q1 (Q4 2022: -0.2% SAAR).

On an annual basis, economic growth accelerated to 1.3% in Q1, from the previous period’s 0.4% expansion.

Looking toward Q2, our panelists expect GDP growth to remain broadly stable. On the one hand, the economy is moving closer to regaining its pre-pandemic size, reducing the tailwind from catch-up growth. On the other hand, exports are expected to rebound in Q2, supporting growth. A key factor to watch in Q2 will be the speed of the economic recovery in China—Japan’s largest export market. Economic data in China in April undershot expectations, and our panelists expect GDP growth in the country to be slowing in Q2.

Goldman Sachs said:

“We set our initial real GDP tracking estimate for 2023 Q2 at +1.6%: On May 8, the Japanese government downgraded its risk classification for COVID-19, [meeting] all the conditions for economic reopening. In addition to robust travel demand during the Golden Week holiday period in May, we expect visitors to Japan from mainland China to also pick up moving forward. As a result, inbound consumption is likely to function as a further tailwind for Japan’s economy.”