Japan: GDP Rebound Confirmed

• GDP growth in Q2 was slightly weaker than expected, but confirmed a strong rebound in GDP albeit from very depressed levels.
• Private consumption and exports were the main growth drivers, while fixed investments and inventory were the main drags.
• Going forward we expect GDP to remain above trend during 2009, but we do not expect BoJ to change its monetary policy stance until H2 2010.

Details

As widely expected GDP growth rebounded in Q2 to 0.9% q/q from a revised -3.1% q/q growth rate in Q1, leading to the first positive growth rate in five quarters. The growth was mainly driven by private consumption which rose 0.8% q/q, boosted by one-off tax cuts. Net exports were also a main contributor to growth adding 1.6 %-points to overall GDP growth. Residential investments and government consumption came out somewhat weaker than expected and contributed negatively to the overall GDP growth.

Going forward we believe that private consumption will be somewhat weaker than today's reading as the boost from tax cuts disappears. However, as the labour market starts to stabilise and consumer confidence continues to improve we do not expect to see a sharp drop in private consumption in the following quarters. In addition to this, we expect the negative impact from corporate investment and inventories to be substantially less, while exports will continue to provide a major boost to growth. Overall we expect GDP growth to remain considerably above the trend growth rate through 2009, and we see no reason to change our forecast on the Japanese economy.

Danske Bank
http://www.danskebank.com/danskeresearch

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