Japan's First Quarter GDP Contracted at a Faster Pace, Nikkei Extended Rally to Third Day

Akira Ito
02 Jul, 2024
Tokyo

The persistent weakness in the yen boosted stock market indexes for the third session in a row. 

The Nikkei and the Topix indexes jumped more than 1% in the hopes that export-heavy industries are likely to benefit from the falling yen. 

Currency traders prepared for another round of market intervention as the yen drifted to a new 38-year low of 161.63 against the U.S. dollar. 

The Finance Ministry and the Bank of Japan have signaled that the rapid decline in the yen is likely to invite market intervention. 

Despite the jawboning, the Bank of Japan has still lagged in adjusting its monetary policy and shrinking the wide interest rate differential with the U.S. bonds. 

Moreover, the central bank continues to fund elevated levels of government bond purchases, which adds to the already high government deficit. 

Investors also reassessed the economic growth outlook after Japan's economy shrank more than initially estimated. 

Japan revised its first quarter real economic growth contraction to an annual pace of 2.9% from the preliminary estimate of 1.8% decline, the Cabinet Office said in an unscheduled release on Monday. 

The GDP data revision reflected the weaker-than-previously estimated construction orders. 

The Cabinet Office also cut growth in the December quarter to an increase of 0.1% from the previous estimate of 0.4%. 

Investors overlooked inflation worries after crude oil prices jumped to a two-month high amid rising demand and supply cuts by the OPEC+. 

 

Japan Stock Movers 

The Nikkei 225 stock average jumped 1.1% to 40,074.69, and the Topix index advanced 1.2% to 2,856.62. 

Retailers were in focus for the second week in a row after J. Front reported better-than-expected net income.

Moreover, Japan is expecting record tourist arrivals this summer as foreigners take advantage of weak currency and increased mobility of Chinese tourists after the end of COVID-19 restrictions. 

J. Front rose 1.8% to ¥3,145.0, Takashimaya declined 2% to ¥2,948.0, Seven &I Holdings added 0.7% to ¥1,973.50, and Isetan Mitsukoshi gained 1.8% to ¥3,210.0. 

Dai-ichi Life, Daiwa Securities, T&D Holdings, and MS&AD gained between 3% and 4%. amid a rebound in financial services stocks. 

Dentsu Group declined 2.1% to ¥ 3,945.0, and Sumitomo Pharma dropped 2.2% to €2.14.