Japan's 2015 growth anemic at 0.4%

4Q15 GDP shrinks 1.4% q/q.

It has been noted that the preliminary estimate for the Japan 4Q-2015 GDP came in below market expectations, recording a deeper contraction of -1.4% q/q SAAR or -0.3%q/q.

According to a research note from UOB, meanwhile, the Bloomberg median forecast was for -0.8% q/q SAAR or -0.2%q/q.

That said, the 3Q growth was revised higher to 1.3%q/q SAAR, 0.3% (from +1.0%q/q SAAR, 0.3%q/q). This was the 2nd quarter of contraction suffered by Japan in the last 3 quarters. For 2015, the Japanese economy grew at an anemic 0.4% pace after its minute -0.03% contraction in 2014.

Here’s more from UOB:

We are still concerned about domestic consumer weakness in Japan on top of risk of the uncertain external demand contribution to Japan’s headline GDP and the 4Q weakness again puts “Abenomics” into question.

That said, the weaker 4Q GDP outcome reinforced expectations for further stimulus from BOJ in its upcoming March MPM and the Nikkei 225 index surged more than 5% (as of 15 Feb 2016, 11:30am Singapore time) despite the growth disappointment this morning.

We maintain our 2016 growth forecast at 1% but the risk is for growth to be on the downside from our projection. The "second" estimate for Japan’s 4Q GDP will be released on 08 March 2016 and we do not rule out significant revisions although full year growth is not likely to exceed 0.5% in 2015 (recall that the 3Q 2015 GDP was initially released as -0.8%q/q SAAR but it was revised upwards a few times and is now at +1.3% in the latest report).

Our BOJ Outlook – The BOJ Experimented With Negative Rates In January, More Stimulus Possible In March: We initially expected the BOJ to keep its monetary policy “powder dry” for 1H 2016 pending the outcome of the 2016 Shuntō and will add monetary stimulus only in the 2H 2016 with the key consideration for BOJ being the upcoming sales tax hike in April 2017.

We have already been proven wrong in the January MPM where BOJ Governor Kuroda released the “Kraken” by adopting negative interest rates just like Denmark, Sweden and the Eurozone. We now see more easing is likely and as early as March & we still have 7 more policy decisions this year. After the January MPM, we initially viewed the important 2016 MPM meetings will be 27/28 Apr, 28/29 Jul and 31 Oct/1 Nov because these meetings will include the updated outlook reports.

But with the 4Q 2015 GDP disappointment and the recent appreciation of the yen due to the market volatility & safe haven demand, we think more stimulus from BOJ could come earlier in the March MPM rather than later, and possibly in a combination of more asset purchases & further negative rates.