Japan: Economy expected to improve in Q2 – UOB

Alvin Liew, Senior Economist at UOB Group, comments on the latest GDP figures in the Japanese economy.

Key Takeaways

“Despite coming in above expectations, Japan’s 1Q GDP still contracted 1.0% q/q seasonally adjusted annualized rate, due to stalled private consumption spending, a significant drag from external demand and a persistent decline in public investment.”

“Business spending continued to grow but was below expectations, while the other positive contributor was government consumption. After accounting for the 0.2ppt increase from private inventories, overall private demand rose by 0.3% q/q. In comparison, public demand extended its fall in 1Q by -0.2% q/q.”

“We expect the Japanese economy to rebound in 2Q although the extent could be curbed by stronger inflation impacting domestic demand. Japan is also slow to re-open borders to tourism which will be another factor weighing on domestic demand recovery. Meanwhile, manufacturing sector’s recovery continues to be hampered by supply chain disruptions/logistics delays and higher commodity prices due to the on-going Russia-Ukraine conflict and China’s slowdown induced by their COVID-19 lockdowns. The weaker yen is a two-edged sword for Japan as it makes Japan’s exports more attractively priced, but it will worsen the import bill along with the surging commodity prices.”

“We expect Japan to resume its growth trajectory but at a reduced pace of 2.2% q/q SAAR in 2Q (from previous forecast of 3.9%. We now project Japan’s full-year 2022 GDP growth at 1.4% (down from previous forecast of 1.7%), a slowdown from 1.7% in 2021.”