IGI Logo

Japan's GDP grew 0.9% year-on-year in Q3, slightly exceeding expectations but marking a sharp slowdown from the previous quarter's revised 2.2%. Quarter-on-quarter, growth was just 0.2%, driven primarily by private consumption, which grew 0.9%, far surpassing expectations. However, external demand fell by 0.4%, signaling challenges for exporters amid a stronger yen earlier in the quarter. Inflation growth also slowed, as indicated by a softer GDP price index. The subdued GDP data casts doubts on the Bank of Japan's ability to further hike interest rates, particularly against a backdrop of political uncertainty following the ruling party's electoral losses.

Key Highlights

* Japan's GDP grew 0.9% y-o-y in Q3, above estimates.

* Quarter-on-quarter GDP growth slowed to 0.2% from 0.5%.

* Private consumption surged 0.9%, offsetting some economic weaknesses.

* External demand dropped 0.4%, highlighting export struggles.

* Political and inflation challenges raise doubts on rate hikes.

Japan’s economic growth sharply decelerated in the third quarter of 2024, with GDP rising by 0.9% year-on-year, slightly above Bloomberg estimates of 0.7%. This marks a substantial slowdown from the 2.2% growth seen in Q2, which was revised lower from an earlier reading of 2.9%. On a quarterly basis, GDP grew by just 0.2%, down from 0.5% in the previous quarter.

Private consumption, a key driver of the economy, grew by 0.9% quarter-on-quarter, significantly outperforming expectations of 0.2%. This robust spending, buoyed by earlier wage hikes, helped cushion the economy from broader weaknesses. However, other components fared poorly, with external demand falling 0.4%, underlining persistent struggles in Japan’s export sector.

Additionally, the GDP price index indicated slower inflation growth, reflecting easing price pressures after a mid-year uptick. The yen’s strength during Q3 further hurt exporters, though the currency has softened since October.

The GDP reading also brings uncertainty to the Bank of Japan’s monetary policy outlook. The slowing growth and political instability following the Liberal Democratic Party's recent election loss complicate the prospect of further interest rate hikes.

Finally

Japan’s Q3 GDP slowdown highlights robust private spending but underscores export and inflation challenges. Policymakers face tough choices amid political and economic uncertainties.

Above views are of the author and not of the website kindly read disclaimer