Why Japan’s Q1 GDP Growth Surprised the Market



Japan’s Q1 GDP growth

On May 18, 2017, Japan released its first preliminary estimates for 1Q17 GDP. Japan’s Q1 GDP grew at a rate of 0.5% as compared to 0.3% growth in 4Q16. The market expected 0.4% growth in 1Q17. The May reading surprised the market with the improved figure.

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What impacted the GDP?

Components such as domestic demand, private demand, private consumption, and household consumption contributed positively to Japan’s (EWJ) (DXJ) Q1 GDP. However, growth in public investment has turned negative in the last three quarters.

Below are the quarterly changes in the various components of Japan’s 1Q17 GDP:

  • Domestic demand rose 0.4%.
  • Private demand rose 0.5%.
  • Private consumption rose 0.4%.
  • Household consumption rose 0.3%.
  • Public investment fell 0.1%.

Is Japan’s economy stabilizing?

On a quarterly basis, GDP has grown for the last five consecutive quarters. The growth in 1Q17 was the highest since 2Q16. Since 1Q16 to date, Japan’s Nikkei stock index rose 9.4% to 225. During this period, the Japanese yen (FXY) appreciated nearly 7.5% against the US dollar (UUP) (UDN).

On January 29, 2016, the BoJ (Bank of Japan) moved its key interest rate from 0% to -0.1%. It also introduced quantitative and qualitative monetary easing (or QQE) tools. Both the government and central bank have taken various steps to stabilize Japan’s economy. In the present scenario, the rise in economic growth is strengthening investors’ confidence in the economy.

In the next part of this series, we’ll analyze the performance of US Q1 GDP growth.


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