Japan GDP growth smashes expectations, pushing the Nikkei to a nine-month high

Nov 14, 2016 – City A.M. – Japan’s gross domestic product (GDP) grew at an annualised rate of 2.2 per cent in the third quarter of 2016, outperforming analyst expectations of around 0.8 per cent and helping to drive the country’s stock market, the Nikkei, to a nine-month high.

The GDP growth rate grew by 0.5 per cent from July to September, beating the 0.2 per cent increase in the second quarter of 2016, according to preliminary estimates released today by the Japanese government.

The Nikkei 225 benchmark index rose by 1.71 per cent to close at 17,672.62, the highest point since February of this year, when the market plunged by over 11 per cent in a week.

The figures show third-quarter growth was heavily reliant on exports, with external demand accounting for the majority of the increase. This represented the first export rise in six months, despite the stronger yen weighing on exports.

The yen has fallen in value since the election of Donald Trump as the next US president last week. This could provide a further boost to exporters as the weaker currency makes prices cheaper for foreign buyers.

However, private consumption expenditure increased by only 0.1 per cent in real terms in the third quarter, which points to weak domestic demand. The reliance on exports could potentially make Japan’s economy more vulnerable to global economic conditions.

The stronger-than-expected growth could lower pressure on the Bank of Japan to provide further stimulus to the economy by lowering interest rates.

The latest round of stimulus, announced in September, will be accompanied by further fiscal measures under Prime Minister Shinzo Abe’s signature “Abenomics” programme. The programme aims to reverse Japan’s economic stagnation and to boost GDP to 600 trillion yen (currently equivalent to around £4.4 trillion).

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