Japan 3Q starts with a whimper amid fall in numbers

Sales tax hike recovery is slow-paced.

In Japan, a string of data for July was recently released, giving indications that for the third quarter, performance was weak.

According to a research note from DBS, industrial production rose merely 0.2% Mo sa, missing the consensus forecast of 1% by a wide margin.

Further, retail sales fell unexpectedly by -0.5%, in contrast with the consensus estimate of a 0.3% rise.

Here’s more from DBS:

Meanwhile, unemployment rate deteriorated to 3.8% in July, up from 3.7% in June and the bottom of 3.5% in May.

CPI inflation eased to 3.4% YoY on the other hand, down from 3.6% in the previous month and the peak of 3.7% witnessed in May.

The output/consumption/labor data all point to weak growth in 3Q. The recovery of economic activities from the sales tax hike is slow-paced, which might be partly attributed to the interruption impact from the typhoon weather this summer.

We suspect that the underlying growth momentum is also weak, due to declining real wages and lackluster export demand.

In our full-year GDP forecast of 1.2%, we have assumed a strong growth of 4% QoQ saar in 3Q.

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Barring a very strong rebound in Aug-Sep period, the risks to our forecast will be on the downside.