Japan’s real GDP growth accelerated 1.7% q/q saar in the first quarter of 2016, following a 1.7% contraction in the last quarter of 2015. Q1 figures surpassed market projections of a near-zero growth. But, effects of leap-year might have given around 1.5%q/q saar stimulus. This implies that the economic growth was nearly flat in the first quarter, said Barclays in a research report.

Japan’s Q1 growth was underpinned by private and government consumption, helped by a surprised decline in import. Meanwhile, capital expenditure declined consistent with subdued capital goods shipment. Machinery orders data showed that core orders rose 6.7% q/q in the first quarter. However, core orders are forecast to fall 3.5% q/q in the second quarter. Risks to the forecast might be tilted to the downside due to the rapid gain in Japanese yen and the recent earthquakes, added Barclays.

Japan’s real GDP forecast for the second quarter is revised downwardly to 0.5% q/q saar as compared with the earlier projection of 1%, mainly because of the earthquake, stated Barclays. On the policy front, Prime Minister Abe is expected to delay the hike in consumption tax that is set for April 2017. According to an earlier report in the Nikkei newspaper, Abe is expected to have already decided to postpone the hike before the first quarter GDP data was released. Postponing the hike might eliminate frontloading of demand that was earlier projected for H2 FY16.

“We have revised our real GDP growth forecasts to 2.0% q/q saar for Q1 17 and 2.3% for Q2 17 from 5.1% and -6.1%, respectively”, noted Barclays.

Moreover, the Japanese government is expected to compile a second supplementary budget of JPY 5 trillion to boost the economy. Meanwhile, the first quarter GDP also lowered the risk of BoJ further easing policy in June. However, the central bank is expected to ease policy in July, added Barclays.