Japan GDP Surges 4%, Most In Two Years, On Jump In Government Stimulus Spending

Japan's economy grew by 1% sequentially, and 4% on an annualized basis in Q2, smashing expectations of a 2.5% print and well above the upward revised 1.5% in the first quarter; it was also the the highest quarterly growth since a 5% print in Q2 2015, Japan's Cabinet Office reported, and the 6th consecutive quarter of expansion for recently embattled Prime Minister Shinzo Abe, who has plunged in the polls following a series of corruption scandals.

The unexpectedly strong GDP print was driven by a 9.9% jump in private non-residential investment as well as an striking 21.9% annualized surge in public investment as some of the public works spending included in last year’s economic stimulus package starting to emerge; meanwhile exports declined.

On a sequential basis, GDP rose 1.0%, above the 0.6% expected, up from the 0.4% in Q1 and the highest print in just over two years.

Annualized private demand soared by 5.3%, or 1.3% higher compared to the first quarter, an impressive jump from the previous quarter’s rise of 0.2%. Private consumption rose 0.9% in Q2, more than double the 0.4% reported for the first quarter.  Aside from the clearly "one-time" surge in public investment, which in the second quarter exploded by an annualized 21.9% as some of the public works spending included in last year’s economic stimulus package have started to emerge, private non-residential investment climbed 2.4% from 0.9% in Q1, while government consumption grew 0.3%, bouncing from a 0.1% contraction in the prior quarter.

Finally, spoiling the otherwise pristine report was the unexpected drop in exports of goods and services which dropped 0.5% on a quarterly basis and -1.9% annualized, the lowest export number since Q2 of 2016. The plunge in net exports dragged Japan's headline growth figure down 0.3% points.

Ahead of the number, Goldman's Japan analyst Naohiko Baba said that "we estimate Apr-Jun real GDP growth of +2.4% qoq annualized, up from +1.0% in Jan-Mar. While we expect net exports to turn to a negative contributor, we think private-sector demand was strong for personal consumption and capex. We also expect double-digit growth for public capital formation, with some of the public works spending included in last year’s economic stimulus package starting to emerge. We think Apr-Jun GDP will show a clearer tilt toward domestic demand led growth. "

Separately, Barclays analysts said that "looking forward, we expect real GDP to rise an annualized 1.3% in Q3, 0.9% in Q4, and 1.0% in Q1 2018 on a q/q basis,” they wrote. “For Q3, we believe external demand will reverse to a positive contribution and anticipate a continued economic boost from last fiscal year’s second supplementary budget of 11 October 2016?.

Considering the absolute non-reaction in markets, where the USDJPY is up barely 20 pips in a delayed response to Japan's "best" economic report in over two years, either nobody puts any credibility in this number, or just as likely, fundamental economic data no longer matters to any investing decisions.

Finally, as some commentators put it best on Twitter, "yen climbs on nuclear war. yen falls on strong GDP. good"


Bay of Pigs Sun, 08/13/2017 - 21:08 Permalink

Public works spending? LOL! This number is pure fantasy and utter bullshit. The BOJ is printing money and buying all their bonds. Their real economy is in the toilet.

Paul Kersey Sun, 08/13/2017 - 21:18 Permalink

The BOJ has been monetizing Japan's debt since 1990, and still, 27 years later, the Japanese Government can still print itself out of a depression. Greenspan didn't start printing the US out of potential economic crashes until ten years later (Y2K), so who knows how many years of ponzi printing the Fed has left. The USG has more governmental control of the economy than the Soviet Union did. There's nothing more corrupt than socialism for the very rich, when it's controlled by an international banking cartel. Even the Soviets cared more about their citizens.

Thebighouse Sun, 08/13/2017 - 21:20 Permalink

This is fake newsOf course economists say that fake money spent is organic growth.BULL SHIT.Japan is Fuked-shima'd.The demographics have it by the balls, just like the USWar will thin the herd and put in resets.What a world.This is absolutely my last post.  I get sucked into this crap that has no real meaning in the lives of real people.It pushes us around, but that is life in the river.  You better not fight the current because you certainly won't win.God Bless. 

Yen Cross Sun, 08/13/2017 - 21:26 Permalink

  The ponzi continues.  Japanese companies have been strip mining the countries they export to for years. They haven't passed on the f/x disparities,  and lower commodity prices to consumers.  This is another travesty caused by ZIRP.

Stormtrooper Sun, 08/13/2017 - 21:42 Permalink

OK Janet.  This proves that debt doesn't matter!!   Get the printing presses rolling ASAP.  Target?  $100 trillion.  That should jump start the US.  Don't worry about inflation.  We have solid currencies like Bitcoin working for us so an overshoot of $50-100 trillion won't matter.  We've got to get those entitled/drug addicted Americans back to work.