Japan's Q2 GDP Beats Expectations: ETFs In Focus

Japan’s GDP grew for the sixth straight time in the second quarter of 2017. It expanded an annualized 4%, beating market expectations of 2.5%. This compares with a revised growth of 1.5% in the last quarter. However, this is preliminary data and going by the history, it might be revised.

The better-than-expected growth was driven by higher private consumption and business spending. While private consumption increased 0.9% sequentially in the second quarter, business spending rose 2.4%. On account of an increase in imports, net export led to a 0.3% decline in GDP.

The Bank of Japan (BOJ) on July 20, 2017 kept its benchmark interest rate steady at -0.1%, while cutting its inflation forecast for the fiscal year ended March 2018 and March 2019.

Moreover, it kept its stimulus package intact, with no changes in its policy of injecting trillions of yen every year into the economy through government bond purchases. This weakens the yen, thus making exports cheaper to foreigners. This is a key factor for the Japanese economy, as it is heavily dependent on exports.

Consumer prices in Japan increased 0.4% year over year in June 2017, far from BOJ’s 2% target. The primary banking authority of Japan expects inflation to slow to 1.1% in the current fiscal year compared with its earlier forecast of 1.4% and to 1.8% in the next fiscal year compared with its earlier forecast of 1.9% (read: Bank of Japan Cuts Inflation Forecast: ETFs in Focus).  

The primary reason that was being attributed to the historically low inflation was the weakness in private consumption. The recently released data might be indicative of the consumer spending issue fading (read: Japan Economy on the Mend? ETFs in Focus).

The unemployment rate fell to a 22-year low of 2.8% in June from 3.1% in May. Moreover, the job-to-applicant ratio increased to 1.51 from 1.49 in May. Consumer confidence improved marginally to 43.8 in July from 43.3 in June, while the business confidence index increased to 17 in the second quarter of 2017 from 12 in the first quarter of 2017.

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