Japan's real GDP likely to post 0.0% q/q saar in Q3

The prospects of the BoJ easing on 30 October seem to fluctuate with each data release. Much of the focus has been on the outlook for Q3 GDP, where a negative q/q reading would mark a technical recession (two consecutive quarters of contraction).

Politically, such a reading might create pressure for monetary as well as fiscal stimulus. The GDP outlook of Japan for the whole of FY15, to be updated in the Outlook Report on 30 October, will prove more important than that for Q3 alone.

This past week has brought mixed signals concerning Q3 GDP. Last Friday's composite index of consumption was stronger (0.8% m/m in August) than expected, indicating an upside risk to the forecast for GDP-based private consumption (0.2% q/q) and real GDP itself (0.0%), estimates Barclays. 

Hence, a lower probability of a technical recession. However, consumption is a lagging indicator, ie, insufficient for forward-looking policy management. 

"With this mix of signals, we have retained our Q3 real GDP forecast of 0.0% q/q saar. This is consistent with the 50% probability of recession estimated by our probit model based on the close correlation between IP and GDP. The markets will likely continue to look for more definitive signals prior to the 30 October MPM", says Barclays in a research note to its client.