Data updates
▶　Most major economic indicators deteriorated in January, including residential construction, capital goods shipments, private capital investment, exports, imports, and large retailers’ sales. Inventories piled up as industrial production increased slightly. The recovery in production, however, has been slow since the consumption tax hike last October.

2020 Q1 Forecasts
▶　Our forecast for 2020 Q1 real GDP growth is an annualized -0.3% QoQ.
▶　We forecast an overall GDP deflator of -0.0% QoQ in 2020 Q1.

Data updates
▶　All major economic indicators deteriorated in 2019 Q4, including industrial production, plannned residential construction, capital goods shipments, private capital investment, exports, imports, and large retailers’ revenues.
▶　Inventories piled up due to the reactionary fall in demand after the consumption tax hike in October.

2019 Q4 Forecasts
▶　Our forecast for 2019 Q4 real GDP growth is an annualized -4.4% QoQ.
▶　We forecast an overall GDP deflator of +0.１% QoQ in 2019 Q4.

Data updates
▶　There was a major upward revision in Japan’s 2019 Q3 real GDP growth (+0.2%→+1.8% QoQ, annualized). The updated official figure coincides with APIR’s initial forecast.
▶　However, Q4 looks gloomy. The October-November averages of industrial production indices, plannned dwelling construction, capital goods shipments, exports, imports, and sales by large retailers all declined relative to the Q3 averages.

2019 Q4 Forecasts
▶　Our forecast for Q4 real GDP growth is an annualized -4.5% QoQ (a downward revision from our previous forecast).
▶　We forecast an overall GDP deflator of +0.１% QoQ in Q4 (no change from our previous forecast).

Highlight: Global trade has bottomed out, but recovery remains uncertain

▶　Japan’s Q3 real GDP growth was an annualized +0.2% QoQ, well below expectations. APIR’s latest forecast for real GDP growth is +0.7% in FY2019, +0.4% in FY2020, and +0.7% in FY2021.

▶　Rush demand before the consumption tax hike this time was not as pronounced as in 2014. Although private consumption remains weak, we deem an economic recession in FY2019 is unlikely.

▶　The China-US trade conflict is taking its toll on global trade. As the effects of protectionist policies will extend into FY2020, the Japanese economy is not expected to get back on the path to recovery until FY2021.

▶　Future inflation will be influenced not only by energy and non-energy prices, but also by the consumption tax hike and the elimination of child care fees. We forecast a core CPI inflation of +0.6% in FY2019, +0.4% in FY2020, and +0.5% in FY2021.

Data updates
▶　Japan’s Q3 real GDP expanded an annualized +0.2% QoQ, well below expectations.
▶　In October, industrial production, plannned dwelling construction, capital goods shipments, real exports and imports all declined. Retail sales shrank by -14.4%, more than they did after the previous tax hike.

Q4 Forecasts
▶　Our forecast for Q4 real GDP growth is an annualized -3.2%.
▶　We forecast an overall GDP deflator of +0.１% QoQ in Q4.

Data updates
▶　The Q3 index of industrial production declined for the first time in two quarters.
▶　Rush demand before the consumption tax hike is evident in September data on retail sales, which saw robust growth.
▶　Both planned residential construction expenditure and capital goods shipments increased in Q3.
▶　Q3 real net exports expanded.

Forecasts
▶　Our forecast for Q3 real GDP growth is an annualized +0.9%. This forecast is likely to be revised upwards once September data on private final consumption is released.
▶　We forecast an overall GDP deflator of +0.2% QoQ in Q3.

Data updates
▶　The index of industrial production in August declined for the first time in two months (-1.2% MoM).
▶　Rush demand before the consumption tax hike this year seems limited compared to the previous tax hike in 2014.
▶　Both planned residential construction expenditure and capital goods shipments increased in July-August.
▶　Real net exports expanded.

Forecasts
▶　We forecast real GDP growth (expenditure side) of +0.6% QoQ in Q3, or +1.4% if annualized. The production-side forecast is an annualized +2.6%. The average of the two forecasts is an annualized +2.0%.
▶　We expect that the reactionary fall after the tax hike this year will be milder than it was five years ago.
▶　We forecast an overall GDP deflator of +0.1% QoQ in Q3.

Summary: Private domestic demand might taper off amid deteriorating global trade

▶　Japan’s Q2 real GDP growth was an annualized +1.8% QoQ, precisely matching APIR’s final　CQM forecast of +1.8%. Private and public domestic demand propped up growth, whereas net exports made a negative contribution. The China-US trade frictions remain the main risk factor to global trade, posing significant challenges to making forecasts.

▶　APIR’s forecast for real GDP growth is +1.0% in FY2019 and +0.5%　in FY2020. The tax hike in October 2019 will inevitably cause a temporary downturn. However, we deem that an economic recession in FY2019 is unlikely due to several factors (see full report).

▶　In addition to energy and non-energy price fluctuations, as well as the impact of the tax hike in October, future trends in prices will be influenced by the planned elimination of child care fees. Considering all these factors, we forecast a core CPI inflation of +0.6% in FY2019 and +0.5% in FY2020.

Data updates
▶　Q2 real GDP grew an annualized +1.8% QoQ, expanding for the third consecutive quarter.
▶　The consumption goods production index in July fell -0.3% compared to the Q2 average. In contrast, the capital goods production index in July increased +2.0% compared to the Q2 average.
▶　Compared to the Q2 average, real exports and real imports in July grew +2.1% and +1.1%, respectively. As a result, net exports expanded.
▶　The national Consumer Price Index (CPI) in July increased +0.6%YoY, expanding for the 31st consecutive month.

Forecasts
▶　Our forecast for Q3 real GDP growth (expenditure side) is +0.6% QoQ, or +2.6% if annualized.　The production-side forecast is an annualized +2.7%.
▶　We forecast an overall Q3 GDP deflator of +0.2% QoQ.

▶　We forecast a real annualized GDP growth of +1.5% in Q2 (expenditure side). The production-side forecast is an annualized +2.1%.

▶　Q2 GDP growth was mainly driven by domestic demand, while net exports are expected to have made a negative contribution.

▶　The latest official figures suggest a robust increase in production, consumption and capital investment in Q2. However, this might be temporary, as the forecasts from the past month suggest a growth deceleration trend.

▶　Q2 CPI inflation is expected to have decelerated to a modest +0.1% QoQ. We forecast an overall GDP deflator of -0.1% QoQ.

▶　Despite the small upward revision in Q1real GDP official estimates, there are reasons for concern as the  demand-side GDP components all declined QoQ. Growth was mainly driven by the expansion in private inventory changes and shrinking imports.

▶　Contrary to our expectations of an economic recoil following the long holidays, May data showed a robust increase in production. However, this might be temporary.

▶　Regarding Q2, we forecast a real annualized GDP growth of +0.2% (expenditure side). The production-side forecast is an annualized +0.6%. The forecasts from the past month suggest a growth deceleration trend.

▶　Although real GDP in Q1 expanded for the second consecutive quarter, there are reasons for concern as the  demand-side GDP components declined QoQ. Growth was mainly driven by the expansion in private inventory changes and declining imports.

▶　For Q2, we forecast real annualized GDP growth of +0.9% (expenditure side). The production-side forecast is an annualized +1.2%. The forecasts from the past three weeks, however, suggest a negative trend. We forecast a GDP deflator of -0.0% QoQ in Q2.