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    Japan’s GDP: weak points of a strong report

    It was a lucky day for the Japanese government yesterday: the country’s real GDP growth exceeded forecasts in the first quarter, reaching 2.4% y/y vs. the expected 1.5% and 1.1% in the last quarter of 2014. These data show that Japan is recovering from the increase of the sales tax last year, that sent the economy into recession.

    However, I would like to focus on the weak points of this report, rather than on its strengths. There are three main points, that I want to consider.

    • Export growth slowdown from 3.2% q/q to 2.4% q/q, despite better expectations, predicting strengthening of this indicator.
    • Growth of capital expenditures fell short of the forecast, reaching 0.4% q/q, instead of the expected 0.6% q/q. The words of the BoJ Governor Kuroda immediately come to mind – who at the end of the last year said that investments in Japan, should have probably been stronger.
    • The 0.5% growth of Japan’s real GDP in the first quarter was due to the increase in private sector inventories. Therefore, if it were not for this factor, the world’s third largest economy would grow by only 1.9% y / y. Thus, the existing domestic and external demand are not strong enough to absorb the entire production volume of Japanese manufacturers. Businesses fill up their warehouses with surplus products, hoping to find buyers in the future. But when the warehouses are full, some of the companies will be forced to cut their production capacity, focusing on the realization of goods they already produced. This creates the risk of a slowdown in the economy in the coming months.

    In this situation, the Government of Japan can only hope that at least one of the two favorable factors manifest themselves in the near future. Either demand for Japanese exports increases on the back of the ongoing global economic recovery, or the increase in business profits leads to growth in salaries, followed by a surge in consumer demand. Even better, if both scenarios take place at the same time! Well, if the demand increases, capital investments will grow too…

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!

    It was a lucky day for the Japanese government yesterday: the country’s real GDP growth exceeded forecasts in the first quarter, reaching 2.4% y/y vs. the expected 1.5% and 1.1% in the last quarter of 2014. These data show that Japan is recovering from the increase of the sales tax last year, that sent the economy into recession.

    However, I would like to focus on the weak points of this report, rather than on its strengths. There are three main points, that I want to consider.

    • Export growth slowdown from 3.2% q/q to 2.4% q/q, despite better expectations, predicting strengthening of this indicator.
    • Growth of capital expenditures fell short of the forecast, reaching 0.4% q/q, instead of the expected 0.6% q/q. The words of the BoJ Governor Kuroda immediately come to mind – who at the end of the last year said that investments in Japan, should have probably been stronger.
    • The 0.5% growth of Japan’s real GDP in the first quarter was due to the increase in private sector inventories. Therefore, if it were not for this factor, the world’s third largest economy would grow by only 1.9% y / y. Thus, the existing domestic and external demand are not strong enough to absorb the entire production volume of Japanese manufacturers. Businesses fill up their warehouses with surplus products, hoping to find buyers in the future. But when the warehouses are full, some of the companies will be forced to cut their production capacity, focusing on the realization of goods they already produced. This creates the risk of a slowdown in the economy in the coming months.

    In this situation, the Government of Japan can only hope that at least one of the two favorable factors manifest themselves in the near future. Either demand for Japanese exports increases on the back of the ongoing global economic recovery, or the increase in business profits leads to growth in salaries, followed by a surge in consumer demand. Even better, if both scenarios take place at the same time! Well, if the demand increases, capital investments will grow too…

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!


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