Japan’s gross domestic product contracted an annualized 1.2% from July to September with the Finance Minister pointing to natural disasters and poor exports as the main causes.
Key Takeaways
- Natural disasters and a decline in overseas demand of Japanese goods may be behind the slowdown
- The Japanese GDP expanded 3% from April - June
- The latest decline is in keeping with economic forecasts
Exports dropped an annualized 71% overall for Q3 2018 with a 5.6% decrease in imports during the same timeframe. Household consumption also declined 0.5% and corporate investment declined 0.9%.
Final sales of domestic product, often used as an indicator to measure domestic demand, also declined 0.9%. GDP private consumption dropped 0.1%, a more moderate figure than the forecast 0.2%. Private consumption accounts for over half of the entire GDP. Finally, Capital expenditure saw no change with the GDP deflator dropping 0.1%.
After eight quarterly expansions in a row, the economy has now slowed down in two out of the last three quarters.
Japan was struck by earthquakes and floods following very heavy rainfall in Q3 2018 resulting in hundreds of deaths and severe infrastructural damage, understandably having a negative impact on consumer sentiment as well as affecting factory operations and the tourism industry.
Market Reaction
As is often the case when confronted with recent financial data, the Yen has had little reaction to the quarterly report, remaining stable in the face of what the central bank likely views as a temporary setback due to the atypical nature of the factors contributing to the slowdown.
However, the Yen had a turbulent start to the week with a slight decline arguably lending strength to the US dollar index, something which is often bearish for gold prices. Gold also saw little change, trading at $1,202.17/oz and up 0.26% with December Futures trading at $1,203.0/oz and up 0.13%.
Expert Outlook
“Some weakness can be seen in the current economy, but employment and wages are continuing to improve and moderate economic recovery is continuing,” Economy Minister Nobuteru Ishihara said in a statement.
“Economic downturns in China and emerging markets in Asia are downside risks to our country’s economy. We need to pay attention to these risks as well as to uncertainties in the global economy and fluctuations in financial markets.”
Katsunori Kitakura, lead strategist at Sumitomo Mitsui Trust Asset Management, said: “Natural disasters forced consumers to stay indoors and halted factory operations which led to a slowdown in production and investment activities”, he said. “In addition, the disasters forced the closure of Kansai International Airport located in Osaka, the second largest city in Japan, and led to a fall in inbound demand and overseas shipments.”
Gold Price Chart
More articles from Conor Maloney
