Apr-Jun GDP Preview: Strong Growth On Domestic Demand    (The following is an excerpt from 'Japan Economics: Apr-Jun GDP Preview: StrongGrowth On Domestic Demand' (31Jul 2017), with some data updated. Please seethe report for details.)    We expect real GDP growth to have accelerated in Apr-Jun (Aug 14), reflectingrobust figures for the domestic demand items of public investment, personalconsumption, and capex.    Faster real GDP growth in Apr-Jun: We expect brisk real GDP growth for Apr-Jun(1st preliminary data to be released Aug 14) at +3.0% QoQ SAAR (+0.7% QoQ).While we anticipate a positive contribution from inventory, we look for firmgrowth in final demand excluding inventory as well driven by a recovery indomestic demand.Fiscal expansion to finally come into play: We expect very strong QoQ growth inpublic investment rather than just a swing to positive territory to boost GDPgrowth in Apr-Jun, given strong Apr-May construction statistics. Publicinvestment declined QoQ for the third straight quarter up to Jan-Mar 2017dueto delays in implementation of the second supplementary budget for FY2016(F3/17), but we expect the fiscal policy impact to finally show up in Apr-Jun GDP.Personal consumption, capex solid too: Personal consumption finally startedpicking up in 2H 2016after ongoing stagnation since the consumption tax hike inApril 2014. We believe personal consumption continued to rise steadily in Apr-Jun 2017, chiefly as spending on durable goods such as automobiles gainedmomentum. We also expect firm growth for capex as Apr-Jun industrialproduction data shows strong growth in shipments of capital goods, which is acoincident indicator of capex. We believe higher capacity utilization combinedwith rising wages from labor market tightening is starting to translate toinvestment in construction as well as machinery and equipment.    But contribution from net exports to turn negative: On the other hand, weexpect GDP growth in Apr-Jun to be dented by a swing to a negative contributionfrom net exports (exports less imports) as exports on a real (volume) basis wereflat but imports rose reflecting the domestic demand recovery.    Positive contribution from inventory but no need for excessive concern: Whileinventory is set to positively contribute to GDP, the inventory ratio (inventory /shipments) in the production statistics has been declining since May and we donot envision inventory buildups depressing growth ahead.(Takeshi Yamaguchi)

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