Japan: Auspicious prints from Q2 GDP – UOB

Senior Economist at UOB Group Alvin Liew comments on the publication of Japanese Q2 GDP figures.

Key Takeaways

“Japan’s 2Q 2022 GDP missed market expectations, as it grew by 0.5% q/q, 2.2% q/q SAAR (versus Bloomberg est: 2.6% q/q SAAR, but in line with UOB est 2.2% q/q SAAR) while the -0.5% contraction in 1Q was revised to a surprising 0.1% expansion. It is also notable that the 2Q growth (and 1Q upward revision) finally lifted the real GDP of Japan to JPY542.1 trillion, above the pre-pandemic level of JPY 540.9tn in 4Q 2019.”

“Sequential expansion in 2Q was due to increases in private consumption, business spending, government consumption and a surprise rebound in public investment. The key drag on the economy was the 0.4ppt decline from private inventories while net external demand/net exports of goods and services did not contribute to sequential growth.”

“We expect the Japanese economy to continue its rebound although the extent could be curbed by stronger inflation impacting domestic demand. Japan remains slow to re-open borders to tourism with daily COVID-19 infections still high at 200,000. Meanwhile, weaker growth outlook in Japan’s key trading partners (especially Eurozone) will also imply weaker demand for Japan’s exports, adding further downside to growth.”

“Despite the slightly more positive growth outcome in 1H 2022, there will greater caution on the external outlook which has deteriorated materially compared to three months ago and the external risks include: 1) the on-going Russia-Ukraine conflict, 2) monetary policy tightening stance in the advanced economies, 3) geopolitical risks, and 4) COVID-19 risk of potential new variants.”

“We expect Japan to continue its growth trajectory but are mindful of the external risks. We are comfortable with our current full-year 2022 GDP growth forecast at 1.5%, a slowdown from 1.7% in 2021. We expect growth to remain at a lacklustre 1.4% for 2023, due to the uncertain external outlook. With Japan’s moderate economic recovery and the challenging external growth outlook while inflation driven by commodities, it means that the BOJ will not be tightening or signaling to do so anytime in 2022.”