Japan’s economy likely to record very low GDP figures in Q1

In February, Japan’s manufacturing data dropped noticeably, with producers’ shipments declining sharply by 4.6% and industrial output also dropping by -6.2% m/m sa. It looks like the Japanese economy might again be on the verge of a technical recession, according to DBS Bank. Industrial production growth on a quarterly basis is very much expected to be negative in Q1, added DBS Bank. Meanwhile, consumption data came in mixed. In February, retail sales continued to decline, falling 2.3%; however, consumer spending grew moderately by 1.7%.

“It still appears possible that private consumption will expand in 1Q16 after a temporary contraction in 4Q15”, says DBS Bank.

Consumption demand recovery should help services sector output, hence countering the weakness in manufacturing out to certain degree, added DBS Bank. Currently, it cannot be concluded that the Japanese economy shrank for the second continuous quarter in Q1. However, it is certain that the economy will record poor GDP figures; lower than consensus projection of 0.6% and DBS Bank’s initial forecast of 1.5%.

“We maintain the view that the BOJ will further cut rates on excess reserves in 2Q. We now also see rising chances of more aggressive policy easing in the coming months – an expansion in the QQE program and a delay in the sales tax hike”, says DBS Bank.