Weak US and Chinese economic recovery to impact Japan's Q2 GDP growth

Japan's negative GDP growth is also impacted by the economic recovery remaining weak in US and China, and therefore the pace of recovery in Japanese exports has been slow. 

"Q2 real export growth likely slowed to -1.6% qoq. Real import growth is also likely to have slowed to -1.9% qoq in Q2. The net export contribution to Q2 real GDP growth is likely to be 0ppt. It has probably been affected by real capex growth which probably fell to -0.4% qoq in Q2 due to the backlash after a strong growth of +2.7% qoq in Q1", says Societe Generale. 

After the strong inventory investment contribution to real GDP growth (+0.6ppt) in Q1, a decrease of -0.2ppt is expected in Q2. The market is concerned that inventory adjustment may continue after Q3, which could drag on  GDP growth. 

However, as corporates start to expect steady economic growth as well as steady acceleration in inflation and rising costs, changes in inventory investment should turn positive. Inventory investment will then become an important factor in lifting growth. 

Since April, the beginning of the new fiscal year, corporates have been actively implementing their business plans, including in terms of capex. The unemployment rate has fallen below the level of NAIRU (3.5%), and strong aggregate wage growth looks set to spur consumption.