Posted on February 16, 2015 by the XM Investment Research Desk at 2:00 pm GMT
The preliminary reading of Japan’s gross domestic product (GDP) for Q4 indicated growth at a 0.6% quarter-on-quarter pace, below the 0.9% forecast. The deflator for the quarter rose to 2.3% compared to 2.0% in Q3. At an annualized rate, GDP came in at 2.2% undershooting forecasts of a 3.7% rate. Meanwhile, the reading for the third quarter was also revised to a contraction of 0.6% compared to the initial reading of 0.5%.
The GDP data for the October to December period follows two straight quarters of contraction and it was encouraging to see that the Japanese economy exited a recession. This would be good news for Prime Minister Shinzo Abe who has implemented tough measures in order to boost the stagnant economy.
Japan’s Economic Minister Akira Amari was upbeat on the data and said to reporters that the economy was on track for a recovery as there were signs consumer sentiment was picking up.
There were other data releases as well today and these included consumption and expenditure. Private consumption, which makes up about 60% of Japan’s economy, rose 0.3% quarter-on-quarter in Q4, less than the 0.7% expected but better than the previous drop of 0.4% in Q3.
Meanwhile, capital expenditure was also up in the final quarter to come in at 0.1% after two straight quarters of declines. This suggests some optimism that the BOJ’s stimulus measures are slowly pushing businesses into investing more.
On a more positive side, exports rose 2.7% from the previous quarter, the most in four quarters. A weaker yen has helped in this aspect.
Overall, today’s data were somewhat disappointing as they all missed forecasts but according to some analysts the data was not weak enough to prompt the Bank of Japan to ease policy at its next meeting on Wednesday. The Bank is expected to wait and see what the impact will be from its October policy easing measures when it significantly ratcheted up its asset purchase program to around 80 trillion yen each year, up from 60 trillion-70 trillion previously. Meanwhile, it was evident that the negative impact from a sales tax hike last April continued to have an effect on the economy. The central bank will also keep an eye on inflation, as it hopes to reach a target rate of 2%.
Following today’s GDP data, the yen firmed and the Nikkei hit an 8-year high. The dollar fell to a low of 118.35 yen after the data.