Japan's GDP smashed expectations

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Japanese economic growth easily topped expectations in the September quarter according to preliminary figures released by the government on Monday.

The economy expanded at a seasonally adjusted annual rate (SAAR) of 2.2% for the quarter, well ahead of the 0.9% increase expected.

It was well above the 0.7% expansion in the June quarter, and the fastest seen seen since the March quarter 2015.

In the September quarter alone the economy grew by 0.5%, well ahead of forecasts for an increase of 0.2%.

It was the third consecutive quarter that the economy registered an expansion.

According to the government, external demand contributed 0.5 percentage points (ppts) to growth, exceeding forecasts for a smaller contribution of 0.4ppts.

It was the largest quarterly contribution to real GDP growth since the June quarter 2014, helped in part by a 2% increase in exports which marked the fastest increase seen in a year.

Japan’s cabinet office said the gain was led by shipments of smartphone parts and steel.

Imports fell by 0.6% over the same period.

However, excluding the effect of strong external demand, domestic demand remained subdued, taking some of the gloss off the stellar headline GDP figure.

Private consumption, which accounts for around 60% of the Japanese economy, increased by just 0.1%. While above expectations for no growth during the quarter, the previous figure — reported as an increase of 0.2% — was revised down to a smaller gain of 0.1%.

Private residential investment grew by 2.3%, contributing 0.1ppts to real GDP.

Private capital expenditure came in flat, following a 0.7% and 0.1% drop in the previous two quarters.

While an improvement from what was seen earlier in the year, it suggests that uncertainties within the global economy, along with recent strength in the Japanese yen, continues to weigh on business investment.

A decline in private inventories detracted 0.1 percentage points from GDP, leaving private demand flat for the quarter.

Public demand increased by 0.2% between July to September, making a marginal contribution to real GDP.

Government consumption rose by 0.4% over the same period, offset by a drop of 0.7% in public investment.

Despite the mixed nature of the GDP report, the USD/JPY has taken off in the minutes following its release, rising to as high as 107.38 moments ago.

It currently sits at 107.26, up 0.55% for the session. It’s now trading at the highest level since late July.

A spike in US treasury yields upon the resumption of trade in Asia, rather than the GDP report, largely explains the move seen in the pair.

The yield on benchmark US 10-year note currently sits at 2.192%, having surged to 2.203% earlier in the session.

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That’s helping to spur on gains for Japanese exports with the Nikkei 225 currently up 1% for the session. It now sits at a level that hasn’t been seen since late February.

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