AUSTRALIA DATA: Gradual Growth Recovery, Trade Uncertainty A Risk

Japan's preliminary Q4 GDP was above market expectations. Q3 also saw positive revisions. The q/q annualized outcome was +2.8% versus 1.1% forecast. In q/q terms this was 0.7% (0.3% was forecast, while Q3 was revised up to 0.4% from 0.3% originally reported). In nominal terms, GDP was up 1.3%, also above the 1.2% forecast, with Q3 revised a touch higher. The GDP deflator was 2.8%y/y, in line with market forecasts. 

• The detail showed positive surprises for consumption +0.1%, versus -0.3% forecast (Q3 was a 0.7% rise) and net exports +0.7%ppts contribution to growth (+0.4ppt was forecast). Business spending rose 0.5%, which was below forecasts but still above the negative Q3 outcome.
• Domestic and private demand were still down in q/q terms after firm rises through Q2/Q3 of 2024. Both metrics are still up in y/y terms.
• The GDP deflator was up 0.6% q/q, accelerating from the 0.3% gain in Q3.
• The data suggest a fairly resilient economic growth backdrop. It continues to suggest a bias towards further policy adjustments from the BoJ. The slowdown in consumer spending, whilst not as weak as feared, will be a watch point though. 

Fig 1: Japan Recorded Positive Growth For 3 Straight Quarters 

Source: MNI - Market News/Bloomberg 

RBA-dated OIS pricing is flat to 2bps firmer across 2025 meetings today, led by late-2025 contracts, ahead of tomorrow’s RBA Policy Decision.

• A 25bp rate cut in April remains more than fully priced (118%), while the probability of a cut tomorrow stands at 83%, based on an effective cash rate of 4.34%.
• OIS pricing is mixed compared to pre-Q4 CPI levels on 24 January, with the Aug-25 meeting up 15bps since early February.
• Historically, it would be highly unusual for the RBA to diverge from market expectations, particularly given its lack of any official or unofficial pushback—a stance it has actively taken in the past.
• The last time the RBA defied market expectations by holding rates despite a 75%+ probability of a cut was April 2015, and before that, November 2012. In both instances, the RBA delivered a 25bp cut at the following meeting.

Figure 1: RBA-Dated OIS – Today Vs. Pre-Q4 CPI

Source: MNI – Market News / Bloomberg

• MNI JAPAN Q4 REAL GDP +0.7% Q/Q; MNI MEDIAN +0.3%
• JAPAN Q4 REAL GDP 2.8% ANNUALIZED; MNI MEDIAN +0.9%
• JAPAN Q4 CONSUMPTION +0.1% Q/Q; +0.1 PP CONTRIBUTION
• JAPAN Q4 CAPEX +0.5% Q/Q; +0.1 PP CONTRIBUTION