MNI: Stronger Q1 Capex, Spending Unsurprising - BOJ

Stronger-than-expected capital investment and private consumption index recorded in preliminary Q1 gross domestic product data were largely in line with consumption activity and capex plans found within the latest Tankan report and expected by Bank of Japan officials, MNI understands.

The officials also believe private consumption and capex in Q2 will remain solid despite greater uncertainty, supporting the Bank's view the Japan’s economy will recover moderately. Q1 GDP showed private consumption, which accounts for about 60% of Japan's GDP, rose 0.6% q/q, after a revised 0.2% in Q4 (see: MNI BRIEF: Japan Q1 GDP Posts First Rise in Three Quarters). The median forecast was for a 0.4% q/q rise.

The BOJ’s Q1 Consumption Activity Index – designed to forecast revised private consumption and not act as a preliminary estimate – rose 1% q/q, reversing from a 0.1% decline in Q4 2022, which indicated solid consumer spending despite high prices and weak real income. The government’s subsidies to lower utility charges and pent-up post-Covid demand are behind the solid spending, which BOJ officials will watch for revisions, MNI understands.

CAPEX UNSURPRISING

The unexpected capex increase of 0.9% q/q in Q1 – the first rise in two quarters – also tracked the solid demand recorded in the Tankan, particularly for software and research, and development investment, which are more long-term plays less impacted by temporary economic swings, Bank officials noted (see: MNI: Solid Capex Confirmed by Q1 GDP - Govt Aide).