Japan's GDP growth hits 4% in Q2

Domestic demand was the main driver of GDP growth.

Japan's real GDP growth for Q2 hit 4%, which is 1% higher QoQ, according to preliminary estimates from Japan's Cabinet Office.

According to DBS Equity Research, domestic demand brought out the surprising growth.

Private consumption went up 3.7%, the fastest pace since 2013. Private residential investment grew 6%, nonresidential investment increased 9.9%, and public investment accelerated 21.9%.

Public demand grew by 5.1% whilst public investment increased 21.9%.

In terms of foreign demand, exports of goods and services were pushed down 1.9%, a technical payback from the 8.0% rate in Q1. Meanwhile, imports were pulled up 1.4%.

Here's more from DBS Equity Research:

Domestic demand should have the potential to pick up further in 2H17, thanks to the improvement in the labour market, Olympics-related construction demand, and modest rebound in credit growth.

The near-term outlook for exports also appears positive, given the cyclical recovery in the global economy and seasonal upswing in the electronics sector.

Having said that, it remains doubtful whether the ongoing growth recovery could push up wages/prices. It is also worth noting that the economy remains vulnerable to external shocks.

Against the current backdrop of weak inflation, rising geopolitical risks, and heightened JPY volatility, the Bank of Japan is expected to maintain a cautious stance and keep monetary policy accommodative.