Japan GDP growth revised down on softer capital expenditure

Bloomberg.- Japan’s economy grew less than the government’s preliminary estimate in the second quarter, weighed down by a revision in capital expenditure by companies.

Highlights of the GDP report
-Gross domestic product expanded by an annualized 2.5 percent in the three months ended June 30, compared with a preliminary reading of 4 percent growth and the median estimate of economists of 2.9 percent.
-Business spending rose 0.5 percent in the second quarter from the previous three months, down from the initial reading of 2.4 percent.
-Private consumption gained 0.8 percent, little changed from the first reading of 0.9 percent.
-Net exports, or shipments less imports, subtracted 0.3 percentage point from GDP, unchanged from the preliminary reading.

Key Takeaways

A decline in private capital expenditure was the largest factor in the revision to Japan’s second-quarter growth. Ministry of Finance data, which were used in the figures released Friday, had foreshadowed that business investment would prove much weaker than previously thought. Still, Japan has maintained a sixth consecutive quarter of growth, the longest run of economic expansion since 2006, and it appears on course to continue this trend in the current.

Economist Views

It’s difficult to see Japan switching toward domestic-led economic growth from here, but unless external demand suffers any major declines, a moderate rate of expansion should continue,” said Atsushi Takeda, an economist at Itochu Corp. in Tokyo. “In terms of external demand, strength in the yen is a key risk factor.
The bigger picture is that the economy is on track for the 7th consecutive quarter of expansion — the longest run since 2001,” Marcel Thieliant of Capital Economics said in a note. “We now expect GDP to expand by 1.7 percent this year and by 1.2 percent next.

Bloomberg Intelligence

As expected, a lower reading on business investment dented the growth figure, but the economy continued to expand faster than its potential growth rate — a clear positive for the Bank of Japan’s efforts at reflation, writes Bloomberg Intelligence Economist Yuki Masujima. Looking forward, a big risk is external — North Korea, writes Masujima. Further escalation in tensions would spell more upward pressure on the yen, a safe-haven currency. A stronger yen would dent sentiment, weighing on business investment.

Other Details

-Measured quarter-on-quarter, GDP expanded 0.6 percent, versus a preliminary reading of 1.0 percent.
-Public investment rose 6.0 percent, up from the initial reading of +5.1 percent.
-Private inventories had zero impact on quarterly growth, unchanged from the first reading.
-The GDP deflator, a broad measure of price changes, declined 0.4 percent from a year earlier, also unchanged from the preliminary reading.
-A separate data release showed Japan’s current-account surplus was 2.32 trillion yen in July ($21.4 billion).


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