In Q1 the Japanese economy grew by an annualised 3.5% q/q, a positive surprise relative to market expectation of 2.7% and the fastest pace in a year. We believe the latest aggressive monetary and fiscal stimulus will continue supporting growth this year. How-ever, structural reforms to liberalise and modernise the economy are crucial for a sus-tainable growth in the long term.
The lion’s share of growth came from household consumption, which grew by an annual-ised rate of 0.9% and contributed with 2.3%-points to growth. A government official said the GDP data showed consumers spent more on recreation, cars and dining out. Con-sumer confidence was generally lifted by expectations for higher wages and recent gains on the stock market. In addition, net exports were lifted by the weakest yen in 4½ years. The corporate sector remains cautious leading to a 0.7% fall in capital spending. The government is considering several measures to boost business investment.
The figures today are viewed as the first evaluation of Premier Shinzo Abe’s three arrow strategies to revive the economy. It is safe to say that he has received a high score. The positive surprise will keep the strong support of the Abe cabinet, currently more than 70%, and increase the likelihood for the LDP to secure a majority in the upper house election on 11 July. In a February survey, the LDP could count on receiving at least 42% of the votes, up from 37% previously.
Nordea