Situation
- On a quarterly basis GDP grew by 0.81% in Q1 2007 (as compared to 1.32% in Q4 2006)
- On a annual basis GDP grew by 2.68% p.a in Q1 2007 (as compared to 2.42% p.a in Q4 2006)
Background
- Japan - Orders grow marginally in Apr’07
- Japan - Dramatic fall in new orders in Mar’07 ( strongest fall since May ‘02 )
- Japan - Production grows at a declining rate in Apr’07
Bank of Japan ( BOJ) governor Toshihiko Fukui has said that the central bank intended to adjust interest rates “gradually” as the economic fundamentals improve. The bank seems to be treating a growth of 2% p.a as a situation wherein they can start tightening monetary policy.
The empahisis is gradually shifting from growth concerns to inflation concerns.
Macro picture
| USA | Euro Zone | Japan | UK | India | |
| 2006q01 |
3.69% |
2.23% |
2.66% |
2.43% |
10.35% |
| 2006q02 |
3.51% |
2.85% |
2.15% |
2.75% |
8.89% |
| 2006q03 |
2.95% |
2.79% |
1.47% |
2.90% |
9.22% |
| 2006q04 |
3.13% |
3.33% |
2.42% |
2.96% |
8.64% |
| 2007q01 |
1.90% |
3.42% |
2.68% |
2.85% |
9.08% |
Conclusion (click on image for a larger visual) 
If the growth rate remains above 2% p.a , the BOJ would feel comfortable in raising interest rates. This in turn could cap growth at this area
As such growth could range between 2.50% p.a (initially) and 1.50% p.a towards early 2008
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