Japan’s economic growth is expected to slow down in Q3 2023, according to the high-frequency data available as of late August. With high inflation and slowing global trade growth, the GDP nowcast for Q3 compiled by Now-Casting Economics is projecting growth of 0.75% quarter-on-quarter (q/q). Should this materialise, it would represent a deceleration from the 1.5% q/q growth in Q2 2023, with the nowcast also predicting a further slowdown to 0.1% q/q for Q4 2023. In terms of year average growth, the FocusEconomics consensus forecast of private sector institutions foresees subdued real-terms GDP increases of 1.21% for 2023 and 1.08% for 2024. The IMF’s predictions are 1.4% and 1%, respectively. 

The slowing economic growth outlook is supported by the CEIC Leading Indicator, which stabilised in July after previously posting a strong improvement for six consecutive months. In July, the composite index preceding Japan's business cycle inched up from 107.71 in June (100 = long-term trend) to 107.87, pointing to a potential a peak. The smaller rise for the month is indicating a peak, notably at a lower level than during the post-pandemic bounce in 2021, which suggests that Japan's growth is set to decelerate in the coming months. 

On the positive side, the FocusEconomics consensus GDP median forecast for the full year 2023 has been upgraded in July to a 1.2% GDP growth rate. In the previous three months, the expectations were for expansion by 1.1%. Private consumption is forecast to increase by 1.5% in 2023 as of July, matching the June forecast. Fixed investment forecast was also stable: 1.9% without undergoing any revisions in July. Private non-residential investment was the star of the show in July, which is expected to grow by 2.9% in 2023. In the previous month, the estimation pointed to 2.2% growth.

On the other hand, the median foreign trade projection by FocusEconomics underwent multiple downward revisions in recent months. The latest median forecast is for a 0.5% increase in exports in 2023. By contrast, at the beginning of the year, the expectations were for over 2% growth. Imports are set to increase by 1.9% in the current year. 

Inflation in Japan is accelerating in August, as indicated by the inflation nowcast provided by Now-Casting Economics. Daily estimates reveal that Japan's Consumer Price Index (CPI) is expected to rise by 3.4% year-on-year in August. This suggests a slight deceleration compared to the 3.3% inflation observed in July. The nowcast suggests that inflation in Japan will continue to rise, reaching 3.5% in September.

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