Japan’s Second-Quarter GDP Growth Expected to Slow Due to Weak Demand, According to Reuters

By Kaori Kaneko

TOKYO (Reuters) – Japan’s economic growth is anticipated to slow in the second quarter, primarily due to weak domestic demand and stagnant exports, according to a Reuters poll released on Friday.

This deceleration would pose a challenge for Prime Minister Shinzo Abe, who emphasized earlier this week that his renewed cabinet’s top priority is to stimulate the economy and combat deflation.

The poll of 21 analysts predicts that the gross domestic product (GDP) will grow at an annualized rate of 0.7 percent for the April-June period, following a 1.9 percent annualized increase in the first quarter. This translates to a quarterly growth of 0.2 percent, compared to a 0.5 percent rise in January-March.

"Hence, the growth rate is likely to be slow due to ongoing weakness in domestic demand and exports, coupled with the fading effects of the Leap Year," stated Hidenobu Tokuda, a senior economist at Mizuho Research Institute. "The implications of a strong yen on exports may soon be felt, and we expect continued weakness in this area for the remainder of the year."

Private consumption, which constitutes roughly 60 percent of GDP, is projected to increase by only 0.2 percent in the second quarter, down from a 0.6 percent rise in the preceding quarter. Meanwhile, capital expenditure is expected to decline by 0.1 percent after a previous 0.7 percent drop.

The Cabinet Office is set to release the GDP data on August 15 at 8:50 a.m. (2350 GMT, August 14).

Recently, Abe’s cabinet unveiled a stimulus package with a total spending commitment of 28 trillion yen, aimed at implementation over several years. The government estimates that this initiative will elevate economic growth by approximately 1.3 percent in the near term.

Additionally, on Wednesday, the Cabinet Office will report June’s core machinery orders, a key indicator for capital spending, which are expected to rise for the first time in three months. This volatile data series is anticipated to increase by 3.1 percent in June, following a 1.4 percent decline in May. Year-on-year, core orders, excluding ships and electrical equipment, are likely to have decreased by 4.2 percent in June, following an 11.7 percent drop in May.

"While company capital spending plans are not particularly negative, the surrounding conditions—such as a strong yen and weak demand—are not favorable," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. "There are increasing downside risks to capital investment."

On Monday, the finance ministry will release the June current account balance, which is expected to show a surplus of 1.0567 trillion yen. This would mark the 24th consecutive month of surplus, although the strong yen is likely to diminish the value of overseas income.

Additionally, the Bank of Japan’s corporate goods price index (CGPI), which measures the prices charged between companies for goods and services, is projected to decline by 4.0 percent in the year leading up to July.