Japan's GDP soars 4% in second quarter

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Exports had been doing most of the heavy lifting as Japan's economy grew in recent quarters, but the figures for the three months to June show domestic demand was a bigger contributor to the 4 per cent annualised growth, the biggest increase since January to March 2015.

The world's third largest economy posted 1 per cent of growth from April to June, up from the 0.4 per cent of the previous quarter.

The Japanese economy has recorded its longest economic expansion in more than a decade after official data showed that it grew at 1% in the last quarter.

Exports fell 0.5 percent in April-June, down for the first time in four quarters.

Capital expenditure jumped by 2.4 percent in April-June from the previous quarter, doubling the median estimate for a 1.2 percent increase.

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Combined, total domestic demand increased by 1.3ppts, completely offsetting a 0.3ppts drag from net exports.

Japan's GDP in the II quarter increased by 4% compared to the same period past year, according to preliminary data of the government.

In a commentary, Barclays said: "The strength of private consumption reflects an improvement in employment and income conditions (eg, drop in unemployment, four consecutive years of increasing base pay), but likely also such factors as favourable weather during that period". Individual spending accounts for more than a half of Japan's GDP. And overseas demand - which led the economy's growth until the previous quarter - is confronted with various risk factors, ranging from the ongoing confusion caused by the USA administration of President Donald Trump, tensions in Northeast Asia over North Korea's ballistic missile and nuclear weapons programs and concerns over the collapse of bubbles in the Chinese economy. The government and the BOJ should explore policy steps to drive the jobless rate even lower to a point where it will start to accelerate gains in workers' wages, thereby expanding consumer spending and hopefully pushing up prices in a "good" inflation driven by demand. It's far from clear whether we're seeing a robust recovery in consumer demand. What is needed is supply-side reform.

Despite the impressive report, Japanese markets are largely unchanged following the release of the report, reflecting that the outlook for inflation, rather than where growth has been, remains the key driver for monetary policy settings from the Bank of Japan. Business spending advanced 2.4 per cent.

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