Japan GDP to shrink 22% in Q2 in biggest postwar drop

As per the latest forecast from Japan’s NIKKEI, the Japanese economy is set to post the world GDP figures during Q2 2020 since World War II.

Key quotes

Japan's economy is expected to contract by an annualized 21.7% during the April-June quarter, it's worst showing since the end of World War II, as the coronavirus crisis sends business and consumer activity into an unprecedented stall, a Nikkei survey shows.

The forecast for real gross domestic product, an average of projections from 16 private-sector economists, shows Japan faring worse than during the global financial crisis of 2008-09, when GDP sank 17.8% in the worst quarter.

The largest contributor to the projected second-quarter decline is an anticipated 6.9% drop in consumer spending, which accounts for more than half of GDP. Consumer confidence slumped to its lowest level on record this month.

The outlook for overseas demand is similarly dim. The U.S. Congressional Budget Office sees real GDP shrinking 40% on an annualized basis this quarter. Though Chinese economic activity has resumed after a virtual halt during the first months of the outbreak, the country lacks the strength to drive the global economy as it did after the 2008 crisis.

The International Monetary Fund projects a global recovery in the latter half of 2020, and the economists surveyed by Nikkei on average forecast a 9.9% expansion for Japan in the July-September quarter. But some observers say economic activity will pick up only gradually, pointing to risks like another wave of infections.

FX implications

The news exerts additional downside pressure on the Japanese yen (JPY) and adds strength to the US dollar’s safe-haven demand. As a result, the USD/JPY extends the previous day’s pullback moves above 107.00, currently near 107.20.

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