Japan suffers with continued lackluster growth

Preliminary release last month showed that Japan will be out of recession (consecutive contraction in 2 quarters) and the economy is expected to grow at 0.6%. This was slashed over the weekend release of the GDP data.

Details -

• GDP grew at 0.4% for the fourth quarter and 1.5% YoY basis down from estimate of 2.2%.
• Consumption grew at 0.5% better than previous estimate of 0.3%.
• Housing investment is down by -1.2% QoQ.
• Capital expenditure is down by -0.1%, lower than previous estimate of 0.1%.
• Government consumption increased by 0.3% QoQ, better than estimate of 0.1%.
• Inventories contributed to -0.2% contraction in the GDP number.
• Exports remained stronger than estimate at 2.8% and contributed to 0.5% in the GDP figure.
• Imports contracted by -0.3%, much lower than estimate of 1.3%

Analogy -

• In spite of positive growth and Japan coming out of recession, the growth remained weak.
• Imports may continue the slide as Yen has weakened since 2012
• Export may also continue to falter as other important economies like Euro zone have sought to competitive devaluation.

Impact -

• Bank of Japan (BOJ) may seek to further ease the monetary policy however that could be difficult as the current purchase rate at ¥ 80 trillion is quite high.
• Prime Minister Abe may refrain from further tax hike due in April and may push the tentative date further in future.
• Either the case would be beneficial for the Japanese stocks, pushing the Nikkei 225 higher. Nikkei is currently trading at 18790, down about 1% for the day. Yen is currently trading at 120.8 against the dollar, trading above the recent broken resistance of 120.5.