Japan GDP is Revised Lower

Japan’s GDP was revised lower in Q4 on weaker capital spending. Japan's gross domestic product increased a real 0.9% in the quarter during the October-December period, or 3.5% in annualized terms. That was lower than the original estimate made a month ago of an annualized 3.7% growth. Capital spending was revised down to a 2.0% on-quarter rise from preliminary 2.9% advance.

Japan’s GDP picture shows differing trends. The chart shows that net exports are continuing to push GDP to stronger growth rates. But real personal consumption trends are decelerating. Exports are still growing strongly while real imports are being curtailed by domestic weakness. Domestic demand in general is weakening with a Y/Y growth rate of just 0.2% in Q4. Gross fixed capital formation is negative and showing a sharp contraction. Housing is a leading negative investment sector. Business plant and equipment expenditures have steadied at a less than a 1% growth pace. In the recent quarter government spending accelerated sharply hiking the yr/yr pace. Private consumption did pick up in the quarter but the year/year pace decelerated nonetheless. With the yen rising Japan will either have to compete harder in overseas markets or supplement trade-led growth with stronger domestic demand.

For Japan, several cyclical indicators have become more positive already. Its own economy watchers index has stopped its decline but is still weak. Machinery orders have picked up. And, the OECD composite leading indicators show that Japan’s index is making a turn for the better after experiencing the worst slump among OECD member countries so far in this cycle. But the US leading indicator is weakening and the US remains an important export market for Japan.