JAPAN DATA: Q1 GDP Contracts, Business Spending The One Bright Spot
Japan Q1 GDP contracted slightly more than market forecasts. Q/Q growth was -0.2% (-0.1% forecast and 0.6% prior), while in annualized terms we fell -0.7%, against a -0.3% forecast but Q4 revisions were higher to +2.4%. This is the first GDP q/q growth contraction since Q1 2024. It comes ahead of likely trade disruptions from US tariffs, while trade negotiations continue. The softer aggregate growth backdrop underscores recent downward revisions to the BoJ growth forecasts, which suggests little prospects of further policy rate hikes in the near term.
- In terms of the detail, private consumption spending was flat, against a 0.1%q/q forecast. Q4's outcome was revised up to a 0.1% gain (originally reported as a flat outcome).
- Business spending was a bright spot, up 1.4%q/q, versus 0.6% forecast, while Q4 was revised higher to +0.8%.
- Net exports dragged more than forecast at -0.8%, while net inventories were positive at 0.3%, close to expectations.
- In nominal terms GDP rose 0.8%q/q, in line with forecasts. The y/y deflator was 3.3%, slightly above forecasts.
- For the BoJ/authorities, the rise in business spending will be encouraging but the flat consumption result will be a watch point. The policy aims remains for better spending outcomes boosted by positive real wages.
Fig 1: Japan GDP - Consumption (White Line) & Business Spending (Orange Line) Q/Q - Diverging Trends
Source: MNI - Market News/Bloomberg
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
US TSYS: Cash Open - Quiet Start
TYM5 is trading 110-31+, - 0-03 from its close. Yields finding further relief heading into a long weekend.
- Cash US tsys are flat to 2bps richer, with a steepening bias.
- The US 10-year yield has opened around 4.33%.
- Risk has stabilised and US yields continued to benefit as Deputy Treasury Secretary Michael Faulkner said officials are discussing a move to loosen bank regulations and allow lenders to keep more Treasuries on their balance sheets.
- The real yield curve has steepened notably in recent weeks, suggesting the market, like the Fed, continues to see inflation risks ahead.
- The Feds Cook did not comment on Monetary policy in his prepared text after the US close.
- Jerome Powell is to speak about the economic outlook later today, the market will be closing attention to this.
- The 10-year yield will continue to find sellers on dips, expect dips back towards the 4.25/4.30 area in the 10-year to find supply.
- Data: Retail Sales, Industrial Production, Capacity Utilization and NAHB Housing Market Index.
BOJ: Ueda States US Tariffs Moving Towards 'Bad Scenario'
BoJ Governor Ueda has commented to local newspaper Sankei, noting the central bank will have to monitor the tariff impact and may need to respond if the economy is impacted. Below are some of the key takeaways, which come via Reuters.
- "Bank of Japan Governor Kazuo Ueda said the central bank may need to take policy action if U.S. tariffs hurt the Japanese economy, the Sankei newspaper reported on Wednesday"
- "Since February, risks surrounding U.S. President Donald Trump's policies have "moved closer towards the bad scenario" the BOJ had envisioned, Ueda said in an interview"
- "Ueda said the BOJ will continue to raise interest rates "at an appropriate pace" if economic and price developments move in line with its projections.
- "But we will scrutinise without pre-conception the extent to which U.S. tariffs could hurt the economy," he said. "A policy response may become necessary. We will make an appropriate decision in accordance with changes in developments." (Rtrs)
- The next BoJ policy meeting concludes in at the start of May. Market expectations for rate hikes have been sharply scaled back over the past month in response to President Trump’s announcement of reciprocal tariffs. Markets now assign a 0% probability to a 25bp hike at the May meeting,
with a cumulative 50% chance not priced in until December. - This marks a significant shift from just a month ago, when a full hike was priced by October and a 50% probability was expected by June.
MNI: MNI JAPAN FEB CORE MACHINE ORDERS +4.3% M/M; JAN -3.5%
- MNI JAPAN FEB CORE MACHINE ORDERS +4.3% M/M; JAN -3.5%
