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GDP growth thumps expectations on consumer, business resilience

Reuters TOKYO (Reuters) — Japan’s economy grew much faster than expected in April-June to mark the third straight quarter of expansion, as robust private consumption and business investment offset the hit to exports from cooling global demand.

The data offers some relief for the Bank of Japan, which is under pressure to follow other central banks and ramp up stimulus to head off heightening global risks.

Gross domestic product (GDP) grew at an annualized 1.8 percent in the second quarter, the Cabinet Office’s preliminary data showed on Friday, far exceeding a median market forecast for a 0.4 percent increase. It followed a revised 2.8 percent gain in January-March.

“There are no signs that the uncertainty from the trade war has prompted firms to rein in investment spending,” said Marcel Thieliant, senior Japan economist at Capital Economics.

“Today’s data will assuage some of the concerns among Bank of Japan Board members about the impact of the global slowdown on Japan’s economy.”

Private consumption, which accounts for about 60 percent of the economy, rose 0.6 percent from the previous quarter to mark the third straight quarter of increase, thanks to brisk demand for cars and air conditioners, a government official told reporters.

Capital expenditure increased 1.5 percent, accelerating from a 0.4 percent rise in January-March and beating a median market forecast for a 0.7 percent gain, as companies invested in streamlining operations in the face of labor shortages.

Office building construction and public works projects drove the strength in capital expenditure, analysts said, a sign the economy’s resilience was underpinned by those sectors less affected by slowing global trade.

Even exports, which were expected to be weak due to the broadening fallout from the U.S.-China trade war, fell just 0.1 percent after a much bigger 2.0 percent drop in January-March.

Domestic demand added 0.7 percentage point to GDP growth, more than offsetting the 0.3 point negative contribution from external demand, the data showed.

On a quarter-on-quarter basis, GDP expanded 0.4 percent, compared with a median estimate of a 0.1 percent gain, the data showed.

The upbeat data underscores the BOJ’s view the world’s third-largest economy will continue to expand moderately, as solid household and corporate spending ease the pain from soft global demand.

But some analysts warn that Japan may lose support from domestic demand after a scheduled sales tax hike in October hits households, many of whom are sensitive to rising prices due to slow wage growth.

“Private consumption was supported by pent-up demand of durable goods ahead of the tax hike,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

“It’s likely that domestic demand will weaken quite substantially from the October-December quarter onwards because of the sales tax hike.”

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