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Analysts at Nomura offered their outlook for this week/s busy schedule for Japan in terms of economic data releases.  

Key Quotes:

“We expect the first preliminary GDP estimates for Q2 2018 to show moderate growth, but we see downside risks to overseas demand.”

June Family Income and Expenditure Survey, real household consumption expenditure (all households) (Tuesday): We forecast June real household spending (per household) to fall by 1.6% y-o-y and rise by 1.9% m-o-m. Looking at household consumption-related statistics released thus far, June department store sales rose by 5.3% m-o-m, the strongest growth since 2015, but we need to take into account the impact of clearance sales being brought forward (seasonal adjustments by Nomura). New passenger car sales volumes were down again in June, falling by 2.9% m-o-m, but this figure is not so weak after considering the sharp rise of 6.5% m-o-m in April, as average growth in April-June remained high at 4.0% q-o-q. However, in the June Economy Watchers Survey, a consumption-related indicator, the household activityrelated current conditions DI (seasonally adjusted) rose by 1.8pp m-o-m to 44.2, indicating a possible recovery from May, when there was a 2.7pp decline. Based on the above, we forecast a rise in real household consumption expenditures for June.

July Economy Watchers Survey – current conditions DI (Wednesday): We forecast that grass-roots sentiment deteriorated slightly month-on-month in July. In the first 10 days of July, many parts of western Japan experienced unprecedented rainfall, which looks to have negatively affected corporate activity, but even discounting for that factor it is hard to find a compelling reason to expect grass-roots sentiment to have improved. Among related indicators, the July Nikkei Japan Manufacturing PMI and the sales DI for July in the Japan Finance Corp (JFC) Monthly Survey on SME Trends both fell. There was also a fall in the July Consumer Confidence Index, an indicator of household economic sentiment, with declines in particular for the overall livelihood DI and the willingness to buy durable goods DI, and we therefore expect a decline in sentiment at companies affected by the demand side. During the survey period of 25-31 July, the Nikkei 225 was only slightly above levels during the same period in the previous month, and we therefore do not expect any boost from higher asset prices.

June core machinery orders (private sector, ex-orders for ships and from electric power companies) (Thursday): Looking at June’s peripheral statistics, machine tool orders for customers in Japan rose by 15.1% m-o-m, a slowdown from growth of 23.2% in May, and production of items with short lead times from order to production fell by 5.7% m-o-m in June, down from growth of 0.5% in May. Therefore we forecast June core machinery orders fell month-on-month for a consecutive month. However, there was a sharp rise of 10.1% in April, so even if June orders come in as we expect, we would not see this as evidence of weak capex demand as April-June orders would be up 4.3% q-o-q.

First set of preliminary estimates for Q2 2018 real GDP (Friday): We expect Q2 (April-June) real GDP growth of 1.4% q-o-q annualized (+0.3% q-o-q). This would be the first quarter-on-quarter growth in two quarters (since Q4 2017). We think exports and private-sector demand continued to grow in Q2. We think consumer spending recovered in Q2 and helped to drive overall growth in GDP, having weakened in Q1 due to the poor weather. We also think capex continued to grow at a moderate pace. The June BOJ Tankan (see Japan: BOJ Tankan June 2018, 2 July 2018) pointed to strong appetite for capex in FY18, suggesting continued firm demand for labor-saving technologies and strong construction demand in major cities in Japan. We think exports continued to grow in Q2 due to the solid US economy. That said, we think slower economic growth in Europe since the start of the year, coupled with economic slowdown in emerging markets, has caused Japanese export growth to lack momentum. Nevertheless, we expect a fairly strong contribution from overseas demand, as imports likely fell in Q2 on the heels of weak domestic demand in Q1. We expect gradual growth overall, albeit not to the same extent as through mid-2017, when GDP grew considerably more than the potential growth rate. We expect the global economy to gradually decelerate while avoiding a sharp slowdown, and look for the Japanese economy to continue growing albeit with little sign of an acceleration. We think investors should be aware of additional downside risks to overseas demand in the shape of US trade policy and a sharp slowdown in emerging economies.”