Japan GDP Growth Revised Down on Softer Capital Expenditure

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.

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).
Source: Bloomberg