MNI: Japan Q3 GDP Posts Modest Growth on Net Exports, Capex

--Japan Q3 Real GDP +0.3% Q/Q; Median +0.4%

--Japan Q3 Real GDP +1.4% Annualized; Median +1.6%

--Japan Q3 GDP Posts 7th Straight Q/Q Growth

--Japan Q3 Domestic Demand Contribution -0.2 Pct Point

--Japan Q3 Net Export Contribution +0.5 Pct Point

--Japan Q3 Consumption -0.5% Q/Q, -0.3 Point Contribution

--Japan Q3 Capex +0.2% Q/Q, +0.0 Point Contribution

--Japan Q3 Private Inventory Contribution +0.2 Pct Point

--Japan Q3 Public Investment -2.5% Q/Q, -0.1 Point Contribution

--Japan Q2 Real GDP Unrevised at +0.6% Q/Q

--Japan Q2 Real GDP Revised To +2.6% Annualized; Prelim +2.5%

--Japan Q3 Deflator +0.1% Y/Y Vs Q2 -0.4%, 1st Rise in 5 Quarters

--Japan Q3 Domestic Demand Deflator +0.5% Y/Y; Q2 +0.3%

     TOKYO (MNI) - Preliminary gross domestic product for the July-September

quarter was released by the Cabinet Office Wednesday.

     FACTORS: Japan's economy for the July-September quarter posted a modest

0.3% rise on quarter, or an annualized 1.4%, as a rebound in net exports offset

a slump in consumer spending caused by bad weather. The median MNI survey

forecast was +0.4% q/q, or an annualized +1.6%.

     The seventh straight quarterly expansion in GDP followed unusually strong

growth of an unrevised 0.6% on quarter, or an annualized +2.6% (revised up from

a preliminary +2.5%), in April-June.

     Private consumption, which accounts for about 60% of GDP, fell 0.5% on

quarter in Q3, marking the first drop in seven quarters after a revised +0.7% in

Q2. The median forecast was -0.3% on quarter, ranging from -0.1% to -0.4%.

     Net exports of goods and services -- exports minus imports and the key Q3

growth driver -- made a positive 0.5 percentage point contribution to total

domestic output, as largely expected (the median forecast was +0.4 percentage

point). It was the first positive contribution in two quarters after pushing

down Q2 GDP growth by a revised 0.2 percentage point.

     Solid exports of electronics and machinery as well as weaker demand for

smartphones imported from China supported net exports, economists said.

     Exports rose 1.5% on quarter in Q3, the first rise in two quarters, after

falling 0.2% in Q2. Imports fell 1.6%, the first drop in five quarters, after

rising 1.4% in the previous quarter.

     Business investment (capex) rose 0.2% on quarter in Q3 (the median forecast

was +0.2%), the fourth straight q/q increase, after rising 0.5% in Q2, and made

a slight positive contribution to Q3 GDP rounded to zero (+0.0 percentage

point).

     Private-sector inventories pushed up Q3 GDP by 0.2 percentage point (vs.

the median forecast of +0.1% point) following the +0.0% point contribution in

Q2.

     Housing investment fell 0.9% on quarter in Q3, the seventh straight q/q

drop. It had a slightly negative contribution (-0.0 percentage point) to the

overall economic growth.

     Public investment fell 2.5% on quarter, the first q/q drop in three

quarters. Its contribution to GDP was -0.1 percentage point.

     As a measure of inflation, the GDP deflator rose 0.1% on year in Q3, the

first rise in five quarters after -0.4% in Q2. Lower import costs pushed up the

deflator while higher import prices pushed it down. The domestic demand deflator

rose 0.5% on year in Q3, the third straight q/q rise, after +0.3% in Q2 and

+0.0% in Q1.

     TAKEAWAY: Going forward, economists expect Japan's economy to post

continued modest growth in the final quarter of calendar 2017, backed by a

pickup in capital investment and exports as well as an expected rebound in

private consumption.

     Companies have been cautious about implementing capital investment amid

uncertainty over global and domestic demand, although capital investment plans

in the current fiscal year have been solid.

     Household spending has also been lackluster due to slow wage hikes and

concerns about the sustainability of social security programs.

     The average economist forecast for Q4 GDP growth is an annualized 1.30%

rise, according to the latest monthly ESP Forecast Survey of 41 economists by

the Japan Center for Economic Research conducted from Oct. 26 to Nov. 1. The

survey showed economists projected GDP growth to continue just above 1% in the

coming quarters through early 2019.

     The ESP survey showed the average economist forecast for GDP was 1.60% in

fiscal 2017, 1.16% in fiscal 2018 and 0.69% in fiscal 2019. The sales tax hike

planned in October 2019 is expected to dampen consumption.

     These figures are slightly lower than the latest median projections by the

Bank of Japan board: 1.9% for fiscal 2017, 1.4% for fiscal 2018 and 0.7% for

fiscal 2019.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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