While Japan's Trade balance missed expectations once again (bigger deficit than hoped or expected), the flashing red headlines of the night belong to Japan's 1.6% QoQ GDP print (better than expected) - the 'best growth' since Q3 2011. The initial reaction was JPY weaker, which meant Nikkei higher (and oddly JGBs rallied too). But... and it's a big but... Japanese consumer spending shot up by 2.2% in Q1 - the biggest on record... matched only by Q1 1997, the quarter before Japan's last tax-hike decision. What happened the quarter after that? Take a look...
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Now what kind of damage will that do to Q2 GDP? Let's take a look at what happened to Japanee stocks after the same surge in "growth" in 1997....
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So are we going to get the bounce of euphoria followed by the 40% plunge of reality?
And in case you think we are over-worrying... Goldman's even more worried...
We expect 2Q 2014 GDP to contract on dropout of pre-tax-hike demand:
We estimate that real GDP will contract by over 4% in Q2 2014 as rush demand to beat the consumption tax hike drops out. Real wages have fallen markedly amid sluggish nominal wages, the higher tax burden on households, and rising consumer prices.
This could dampen consumer sentiment and negatively affect domestic demand over FY14 as a whole.
It's never different this time...