Japan’s economy expanded by 21.4% in the third quarter year-over-year, indicating a sharp recovery following the heavy blow it took after the coronavirus outbreak. As a result, the Nikkei 225 price soared to fresh record highs.Fundamental analysis: Economy recovers
Japan’s gross domestic product (GDP) grew by nearly 19% compared to average estimates, according to data by the Cabinet Office. This is the first expansion in GDP in four quarters and after a 28.8% decline in the period from April to June.
Japan’s economy expanded by 5% compared to the same quarter a year-ago, outstripping consensus estimates of 4.4%. Private consumption grew by 4.7% in the quarter from July to September, compared to the previous quarter, when the consumption plunged after Japan introduced lockdown measures to curb the spread of the pandemic.
Private consumption accounts for more than half of Japan’s economy. External demand contributed 2.9% points to GDP expansion, driven by an increase in demand that stimulated exports growth by 7.0%.
On the other hand, capital expenditure declined by 3.4%, dropping for a second consecutive quarter, indicating that coronavirus-induced uncertainty has pressured business sentiment.
Until now, the country has introduced two stimulus packages that were together worth $2.2 trillion to ease the pressure from the crisis. Yoshihide Suga, Japan’s prime minister has ordered his cabinet to devise one more stimulus package as the pandemic persists.
Experts predicted Japan’s economy to contract by 5.6% in the current financial year ending in March 2021, in spite of strong signs of recovery. The rebound to pre-coronavirus levels could take years, they said.
However, experts are still feeling sceptical about further recovery as weak consumption and rising infections continue to indicate uncertainty in the outlook.Technical analysis: The best month in 11 years?
Nikkei 225 price is trading 12.75% higher this month as the bulls fight to close with the biggest monthly gains since 2009. Once the buyers cleared the previous high near 24300, the price action quickly accelerated to print 25928 today – a new record high.Nikkei 225 daily chart (TradingView)
Looking from this perspective, any pullback to below 25000 will yield more buying interest from the late buyers with a target set at 26235.Summary
Japan’s economy grew by 21.4% in Q3 year-on-year, marking a sharp rebound from the coronavirus pandemic that sent the country’s economy tumbling in the spring. Nikkei 225 price is up almost 13% this month on the improving risk sentiment and economic activity.
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