14th November 2016

Architas: Japanese GDP surprises on the upside

Japanese Q3 GDP was released this morning, coming in at 2.2% annualised and much stronger than analysts’ forecasts of 0.8% as exporters were able to overcome the effects of the strengthening yen. While initial GDP releases are typically subject to revisions, this stronger growth confirms what we’ve been hearing anecdotally from managers and their company meetings that the picture in Japan is improving. This reduces the pressure on the Bank of Japan to increase monetary easing.

However, while a rise in exports was the main driver of the strong growth, there was a corresponding fall in imports which is consistent with sluggish domestic demand and highlights the major challenge still facing the economy, namely low consumption and falling prices. The Japanese economy has been picking up under Prime Minister Abe and one of the arrows of Abenomics is targeting the workforce with labour reforms, but today this seems to be one of the key obstacles to Japan’s recovery and more work will need to be done.

Investment Commentary, Investments