Japan’s growth came in much higher than forecasted at 1% q/q versus 0.6% for the second quarter. Looking back, this release is the best data in the last two and a half years. It also represents the sixth consecutive quarter of positive GDP growth.
Consumer spending has largely improved and helped spur on the good data. Indeed, spending rose 0.9% from Q1 and beat the estimate of 0.5% for the quarter. Consumer spending has traditionally been the weakest point of the Japanese economy. This is maybe changing, but a string of data will be needed to confirm this trend.
Recent fundamentals are good news for the Bank of Japan, which is still the only major central bank not able to hint about further tightening. For the time being, good numbers must at some point translate into inflation. Nationwide inflation stands at 0.4% y/y – way below the inflation target of 2% – and this despite the country’s Abenomics policies and massive quantitative easing. The BoJ monetary policy still cannot be considered as a success. The only true gains have been in stock market, where the Nikkei 225 increased by 16% over the last 12 months.
Currency-wise, the yen is weakening against the dollar and remains under pressure for further appreciation. Geopolitical tensions and market uncertainties may trigger a risk-off move towards yen again. This is the curse of being a safe haven.
By Yann Quelenn