Q4 Japanese GDP

As you might expect, this could produce some volatility in JPY pairs. Given that Japan is the source of carry trades into Australia and New Zealand, this event could see some volatility spill over into those currencies as well.

Here are some things to keep in mind ahead of this major event for the Asia session.

Schedule and Expectations

We are expecting three data points to come in all that the same time on Thursday at 00:30 CET (or Wednesday at 18:30 EST). However, the main focus is going to be on the quarter on quarter figure.

The consensus among economists is for a quarterly increase of 0.3% in GDP, which would imply that Japan managed to squeeze out just 1.4% economic growth for the whole year.

This would be an improvement over the 0.6% quarterly drop registered in the Q3 final number. We should remember that there are two publications of the GDP figures, the preliminary and final. The former is the one that typically moves the markets and it’s the one we are discussing now.

What’s Behind the Analysis

Results from the third quarter were extraordinarily depressed due to trade problems and a series of natural disasters that affected Japan, reducing industrial production and consumer spending.

In the last three months of the year, however, that pent-up demand came to the market, driving up private consumption and capital investment, especially in December. In fact, the monthly tracking of GDP showed that it grew by 1.2% annualized in the last month of the year.

That’s on the positive side. But there are factors weighing on the outlook including continuing weak exports. The balance of trade during the fourth quarter was negative. Also, despite a better performance in December, longer-term capital investment is still seen as muted over ongoing trade concerns. It’s expected that the last quarter will mark the third consecutive drop in exports.

Where firms are investing is in labor-saving capital expenditures, as Japanese firms continue to experience labor shortages. The unemployment rate during this period fluctuated between 2.4% and 2.5%, underscoring Japan’s generational problem and shrinking population.

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