REPEAT: ANALYSTS: Japan Q2 GDP Rise Of Over 2% Seen

By Max Sato

     TOKYO (MNI) - The latest government economic data indicate Japan's growth

accelerated to above 2% at an annualized pace in the April-June quarter from

1.0% in January-March as strong domestic demand offset a temporary slip in

external demand, analysts forecast Monday.

     The Cabinet Office will release preliminary second-quarter GDP data on

Monday, Aug. 14.

     "Q2 GDP will show a solid increase between 2% and 3% annualized, led by

domestic demand, said Akiyoshi Takumori, chief economist at Sumitomo Mitsui

Asset Management.

     "Real exports fell on quarter in April-June, but the drop seems to be in

response to large gains in the previous quarter and does not suggest a slump in

global growth."

     Bank of Japan data released last week showed that real exports fell 0.5% on

quarter in the second quarter after rising 2.9% in the first quarter and 2.4% in

the fourth quarter of 2016, as solid gains to the United States and Europe was

more than offset by declines in shipments to Asia and other regions.

     Second-quarter GDP will post the sixth straight quarterly expansion and

show the highest growth since +0.6% on quarter, or +2.5% on an annualized basis,

in January-March 2016, when a rebound in consumption and exports offset a drop

in business investment, Takumori said.

     Hamagin Research Institute economist Yuki Endo agreed, projecting Q2 GDP

growth of +0.6% q/q, or an annualized 2.4%, up from +0.3% q/q, or an annualized

1.0%.

     "The Q2 GDP growth was led by consumption, business investment and public

investment," he said.

     Endo forecast that private consumption, backed by compensation of employees

(wages multiplied by the number of employees), rose 0.4% q/q in Q2 after +0.3%

in Q1, while private capital investment grew 1.8% q/q following +0.6% the

previous quarter as some firms sought to cope with labor shortages by investing

in equipment.

     The stimulatory effect of the fiscal 2016 supplementary budget emerged in

Q2, pushing up public investment to a 2.7% q/q increase after shrinking in the

previous three quarters, he said.

     "Net exports are estimated to have fallen 0.2% on quarter in Q2 as imports

grew at a faster pace than exports did," Endo said. "But the slowdown seems to

be temporary, as telecommunications equipment exports are likely to pick up

toward year-end as demand for iPhone parts increases."

     But the economy's growth trend is still modest as companies remain cautious

about investing in equipment and raising wages, economists said.

     "While corporate profits are posting record highs, the level of business

investment has only returned to the level seen in October-December 2008, when

demand slumped on the global financial crisis triggered by the collapse of

Lehman Brothers," Takumori said.

     "There is a vague uncertainty over demand in Japan, probably due to the

aging population and fears of artificial intelligence replacing workers."  

     Data released Monday showed that industrial production rose a seasonally

adjusted 1.6% from the previous month in June, as expected, posting the first

rise in two months after falling 3.6% in May. The increase was led by higher

output of passenger cars.

     In April-June, output rose 1.9% on quarter, marking the fifth straight

quarter-on-quarter rise after +0.2% in January-March.

     The Ministry of Economy, Trade and Industry forecast that factory output

based on its survey would rise 0.8% on month in July and gain a further 3.6% in

August. Adjusting the upward bias in output plans, the METI projected production

will dip 0.3% in July. But given the high growth expected in August,

third-quarter output is likely to stay on an uptrend.

     Industrial shipments rose 2.3% on month in June after falling 2.9% in May.

As shipments rebounded, inventories fell 2.2% on month in June, the first drop

in seven months.

     Shipments of capital goods excluding transport equipment -- a key indicator

of the business investment component of GDP data -- fell 1.4% on month in June

but they rose 4.8% on quarter in April-June, the first rise in two quarters.

     This indicates business investment in the Q2 GDP data is likely to show a

solid increase after rising 0.6% on quarter in Q1.

     Other figures in industrial production data pointed to continued solid

growth in private consumption, which accounts for about 60% of the total

domestic output.

     In April-June, durable goods shipments rebounded 4.6% on quarter for the

first rise in two quarters, while non-durable goods shipments rose 3.3%, the

third straight quarter-on-quarter gain.

     Real average household spending posted the first year-on-year rise in 16

months, up 2.3% in June, reflecting a gradual pickup in consumer sentiment and

modest household income gains, data released Friday showed. The highest rise

since August 2015, when spending rose 2.9%, was largely due to unusually dry

weather during this year's rainy season, which led to a sharp increase in home

renovation work compared to a year earlier.

     Spending on automobiles continued to show a year-on-year rise as the effect

of the introduction of new models lingered and the drag from the fabricated gas

mileage data scandal for mini vehicles faded. Spending on mobile communications

also rose in line with the spread of smartphones to more households.

     The core spending index, which excludes housing, motor vehicles and other

volatile items -- close to private consumption patterns in GDP data -- rose 0.8%

on month in June on a seasonally adjusted basis, the first month-on-month gain

in two months after -1.1% in May and +3.5% in April. Q2 core spending is

estimated by economists to be +1.1%.

     The seasonally adjusted average unemployment rate fell to 2.8% in June from

3.1% in May, returning to the rate seen from February to April this year, which

was the lowest since June 1994, when it was also at 2.8%, data released Friday

showed.

     It reflects a tightening labor supply but it has not led to a significant

increase in wages.

     Total monthly average cash earnings per regular employee rose 0.6% in May,

the second straight y/y rise after +0.5% in April. In real terms, average wages

were unchanged on year in May after being flat in April.

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

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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