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Better than Expected Japanese GDP Shows Recovery Led By Domestic Demand

Better than Expected Japanese GDP Shows Recovery Led By Domestic Demand

2011-08-15 00:29:00
David Liu, Technical Strategist
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THE TAKEAWAY: GDP better than expected > Reduced risk appetite as economy recovers, increased demand for riskier assets > Yen weakens

Preliminary second quarter Japanese domestic output shrunk at a slower pace than previously expected. Although the March Tohoku Earthquakes disrupted critical exporting and manufacturing industries, GDP in the previous quarter was led by domestic demand, attesting to the recovery efforts. The key annualized GDP showed output shrunk by 1.3%, while the previous reading for the first quarter was revised weaker from -3.5% to -3.6%.

EVENT

ACT

EXP

PREV

JPY Gross Domestic Product Annualized (2Q P)

-1.3%

-2.5%

-3.6%

JPY Gross Domestic Product (QoQ) (2Q P)

-0.3%

-0.6%

-0.9%

JPY Nominal Gross Domestic Product (QoQ) (2Q P)

-1.4%

-1.4%

-1.5%

JPY Gross Domestic Product Deflator (YoY) (2Q P)

-2.2%

-1.7%

-1.9%

A breakdown of Q2 GDP numbers confirmed the effects of the March earthquakes as second quarter exports was -0.8% compared to 0.0% previously. The higher demand of raw materials for rebuilding pushed imports up to 0.0% from -0.2% previously. Domestic demand however showed a welcomed jump to 0.4% from -0.75 previously. Government consumption slowed to 0.1% from 0.2% previously, and could contribute to additional calls for the central government to contribute more to the rebuilding efforts.

Better_than_Expected_Japanese_Q2_GDP_Shows_Recovery_Pace_On_body_Picture_4.png, Better than Expected Japanese GDP Shows Recovery Led By Domestic Demand

Japan Annualized GDP. Data from the Japan Statistics Bureau & Statistics Center.

Although the Japanese yen strengthened moderately against the dollar immediately after the report, it quickly gave up ground as Asian markets opened for trading. Higher US equity futures and Asian markets contributed to additional yen weakness as risk appetite returned after a volatile week. At the time of writing, the benchmark Nikkei 225 added 1.32% at 9082, while equity futures for the America S&P500 index was higher by 0.671%.

Better_than_Expected_Japanese_Q2_GDP_Shows_Recovery_Pace_On_body_Picture_5.png, Better than Expected Japanese GDP Shows Recovery Led By Domestic Demand

USDJPY 5 Minute Chart; vertical line indicates time of data release. Chart generated with FXCM Strategy Trader.

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