Japan's Slightly Upward Revised Q2 GDP Overshadowed by Weak July Machinery Orders

by: Steven Towns

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Japan Revises Upward GDP-Growth Data For April-June Quarter

  • Summary: Japan's Apr.-Jun. quarterly GDP was upward revised by 0.2% to 1.0% on an annualized basis. Jan.-Mar. quarterly GDP was unchanged at 0.2%. The Cabinet Office credited higher materials inventories for the most recent quarter's revision. The data and thus main components of GDP confirm household consumption and corporate capital spending are driving Japan's growth at a continued moderate pace. Morgan Stanley economist Takehiro Saito comments, "Capex and inventory were not revised up or down as significantly as we had been looking for, so the overall picture looks rather favorable." Saito expects stronger economic momentum in Q3 but sees the BoJ increasingly rates gradually at around 6-month intervals.
  • Comment on related stocks/ETFs: Last Friday the BoJ voted unanimously to keep monetary policy unchanged with the overnight call rate at 0.25%. A weaker-than-expected CPI data report is believed to have been a factor in its decision, although the WSJ article mentions Barclays Capital chief Japan economist who said concerns over prices are secondary to those over the direction of the U.S. economy. The Nikkei 225 lost 1.78% in Monday trading to close under the psychologically important 16,000 level with 82% of Japan's largest-cap stocks declining. Selling was induced by July machinery orders data at -16.7% month-over-month, a huge downside surprise and the worst fall in almost 20 years versus a +8.5% reading for June and an expected +5.5% for July. It certainly looks like the yen's recent rally was hype.