JPY: Big upward surprise for Q1 GDP – MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the latest GDP report from Japan revealed that Japan’s economy rebounded more sharply than expected in Q1 by an annualized rate of 1.7% although it did follow a downwardly revised contraction of -1.7% in Q4.

Key Quotes

“The performance of Japan’s economy has followed a saw-toothed pattern over the last year with the level of real GDP at the end of Q1 roughly similar to where it was a year ago highlighting its disappointing performance.

The rebound in growth in Q1 was driven by private consumption which contributed 0.3 percentage point to growth, government consumption which contributed 0.1 percentage point to growth, and net trade which contributed 0.2 percentage point to growth. It was the largest positive contribution to growth from net trade since Q4 2014. In contrast non-residential investment was a drag on growth subtracting -0.2 percentage point from growth.

The stronger rebound in growth in Q1 may take some immediate pressure of Japanese policymakers to provide more powerful stimulus (fiscal and monetary easing), although the economy’s weak performance over the last year as whole remains a concern. The stronger yen, weak global growth and falling inflation expectations in Japan still keeps pressure on policymakers to deliver further stimulus in the near-term. If Japanese policymakers continue to refrain from delivering further stimulus then the yen is likely to remain on a stronger footing.”