Japan Q3 economic growth likely to rise on stabilization in external factors, recovery in global economies

Japan’s economic growth during the third quarter is expected to rise, following stabilization in the country’s external factors, besides, recovery in the Chinese economy and a modest comeback in the global electronics sector.

Japan’s economic growth is expected to rise to 1.3 percent q/q on a seasonally adjusted annual rate (saar), up from 0.7 percent in 2Q16 and above the consensus forecast of 0.8 percent. Higher growth should be mainly contributed by external factors, including the stabilization in the Chinese economy, bottoming of commodity prices and recovery in the global electronics sector, DBS reported.

Further, exports have picked up in real terms during the Jul-Sep period. Accordingly, industrial production posted 4.6 percent q/q saar in 3Q16, the strongest gains seen since 1Q15. Machine orders also saw strong growth last quarter.

An improvement in GDP figures, primarily driven by exports, should have limited impact on risk sentiment. Uncertainties remain high in the external environment, given the lingering of China’s slowdown risks and the growing concerns about trade protectionism in the US and Europe. A sustained recovery in exports is important, in order to boost domestic growth and create positive inflation dynamics.

Private consumption remained nearly stagnant in 3Q16, as evidenced by the high-frequency indicators including retail sales and household spending. Wage growth remained subdued as the business sector was cautious about the longer-term spending plans.

Meanwhile, construction investment appeared to have fallen last quarter, along with the slowdown in the residential property market.

Meanwhile, at 12:00GMT, the FxWirePro's Hourly JPY Strength Index remained neutral at -39.48 (lower than the -75 mark for bearish trend).