An increase in the sales tax in April hit the Japanese economy hard in Q2, with growth falling to its lowest level since the devastating earthquake of 2011. While last quarters figures weren’t as low as the market was expecting, Q1’s data was revised lower, thus the net impact of the numbers should be broadly neutral.
Preliminary seasonally adjusted GDP fell 1.7% q/q, after rising an adjusted 1.5% in Q1. Annualised seasonally adjusted Q2 GDP fell a massive 6.8% q/q (expected -7.0%) and Q1’s figure was revised lower to 6.1% q/q from 6.7% q/q. Q2’s GDP deflator rose 2.0% y/y, more than an expected 1.6% y/y increase. It’s worth noting that the massive gap between Q1 and Q2 data is not only due to the negative tax-related implications for growth last quarter, but also because of a rush to spend in the lead up to the jump in the consumption tax.
While we are expecting the economy to rebound this quarter, it’s likely going to be slow assent for the struggling island nation. There isn’t really any major driving force behind growth at the moment, with exports suffering due to a lack of international demand and domestic consumption weighed down by weak sentiment and the hike in the sales tax. This begs the question; are we going to see more stimulus from the government?
One to watch: AUDJPY
As we highlighted at the end of last week, AUDJPY is hovering above a key support zone around its 200-day SMA. Renewed faith in the Australian dollar and wide spread yen weakness has helped to keep the pair above water, but it’s not out of trouble yet. If geopolitical risks begin to heat up once again, the yen may be the safe haven currency of choice. On the other side of the equation, the Australian dollar faces a test this afternoon with the release of important Chinese economic data. On the upside, a jump in Australian consumer confidence this month has put the pair on the front foot in early Asia trade.
China’s economic data for July due out at 0530GMT
- Industrial production – exp. 9.2% y.y
- Fixed asset investment – exp. 17.4% y/y
- Retail sales – exp. 12.5% y/y
Source: FOREX.com
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