GDP prospects for Japan “quite good”

Japan just released the latest preliminary GDP estimates for 2021. In the last quarter (Oct-Dec), Japan’s economy grew by an annualized rate of 5.4%. “Personal consumption was much stronger than consensus,” commented John Vail, Chief Global Strategist, Nikko AM, the results. “Capex, net exports and inventories were basically in line, with net trade contributing only moderately to growth, and inventories being relatively neutral for such. On a YoY basis, GDP grew a mild 0.7%. The net effect on markets should be relatively mild.”

Vail assesses the intermediate-term GDP prospects for Japan as quite good. “Consensus is for continued GDP growth in the 1Q vs the 4Q, although the trend is slowing and some major forecasters are expecting only marginal growth due to the virus constraints on both domestic personal consumption and exports.”

He expects Japan to not suffer from a stagflationary trend this year, as inflation remains quite under control, disruptions, including political ones, remain mild and interest rates should remain very low.

“With the yen likely remaining in the 115-120 range, Japan’s competitiveness should remain reasonably good, so Japanese corporate profits should continue to be strong. Thus, with its very low PE valuation, the prospects for the equity market look promising unless the geopolitical situation becomes horrible or global bond yields accelerate sharply further,” Vail concludes.

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