Rebound expected for Japan Q4 GDPーNHK WORLD-JAPAN NEWS

Key Concepts:

• Gross Domestic Product (GDP)
• Annualized Growth
• Real Terms
• Private Consumption
• Capital Investment
• Exports
• Inbound Tourism
• Tariff Policies
• Spring Festival Holiday Travel

Upcoming Economic Events

The week ahead features two significant economic stories. Firstly, China's Lunar New Year holidays commence on Sunday, with the government projecting a record 9.5 billion trips during the 40-day Spring Festival holiday travel period. Secondly, on Monday, Japan's Cabinet Office is set to release its Gross Domestic Product (GDP) figures for the October to December quarter.

Japan's Q4 GDP Outlook and Drivers

Q3 Performance Context: Japan's GDP experienced a significant contraction in the third quarter of last year (July to September), falling by an annualized 2.3% from the previous period in real terms. This sets the stage for anticipation regarding the final quarter's performance.

Private Sector Forecasts: Private sector analysts are largely optimistic, expecting Japan's GDP to show a rise in the fourth quarter. Forecasts for growth range from 0.7% to 2.6%, which would mark the first increase in two quarters.

Expert Analysis: Taka Atsushi's Projections: Taka Atsushi, an economist at Itto Research Institute, projects a growth of 1.8% for Japan's Q4 GDP. He attributes this anticipated rebound to several factors:

• Fading Impact of US Tariff Policies: Taka Atsushi states, "The negative impact of US tariff policies appears to have faded, supporting a pickup in exports and corporate investment."
• Eased Uncertainty: He further notes, "I imagine companies began pursuing plans now that uncertainty surrounding the Trump tariffs has eased somewhat."

Key Factors for Positive Growth: The primary drivers identified for the expected return to positive growth are:

• Rebound in Exports: Exports, which had declined in the July to September period, have gained momentum. This is largely due to the United States cutting tariffs on Japanese cars to nearly half their previous level in September, leading to a sharp increase in auto shipments to the US.
• Housing Investment: This sector also saw a rebound after a fall in the previous quarter.
• Capital Investment: Corporate capital spending is expected to pick up as the uncertainty surrounding US tariff policies has eased.
• Private Consumption: This component, which accounts for more than half of Japan's GDP, is projected to inch up by 0.1% from the previous quarter. Despite the "headwind from rising prices," services consumption is thought to have grown, supported by an increase in bonuses and higher stock prices.

Economic Outlook for Early 2024

While Japan is likely to remain in positive territory during the first three months of this year, the economist anticipates new challenges:

Anticipated Headwinds:

• Weakening US Economy and Exports: Exports are projected to slide again after a brief rebound, becoming a drag on growth. This is due to signs that the US economy is losing strength, which could lead to a decrease or slower pace of growth in Japan's exports to the country.
• Decline in Inbound Tourism: A significant plunge in Chinese tourists is projected during the Lunar New Year holidays. This period is typically peak season for such visitors, but Beijing's call for its people to refrain from traveling to Japan is expected to severely impact this sector.

Offsetting Factors: Despite these headwinds, Taka Atsushi believes that continued growth in private consumption and corporate capital spending will potentially offset the anticipated drop in exports and inbound tourism.

Conclusion

Japan's economy is poised for a rebound in Q4 2023, driven by a recovery in exports, capital investment, and a modest increase in private consumption, largely due to the easing of US tariff impacts. However, the outlook for early 2024 presents a mixed picture, with potential drags from a weakening US economy affecting exports and a significant decline in Chinese inbound tourism. The sustained growth of domestic private consumption and corporate capital spending will be crucial in mitigating these external pressures and maintaining overall economic expansion.