Nowcasting Japan’s GDP

This paper backtests a nowcast of Japan’s real GDP growth. It has three contributions: (i) use of genuine real-time data, (ii) implementation of a new method for the revision analysis that relates the revision of the nowcast to not only new observations but also data revisions, and (iii) a benchmarking of the nowcast to a market consensus forecast at monthly forecasting horizons. Our nowcast’s forecast accuracy is comparable to that of the consensus at most, but not all, monthly horizons. Our revision analysis of the March 2011 earthquake finds the nowcast reacting to a steep post-quake decline in car production. In contrast, the consensus hardly budged, most likely because the decline was correctly viewed as temporary. The onset of COVID-19 triggers the consensus to take a precipitous descent. The nowcast, despite timely red flags from “soft” (i.e., survey-based) indicators, does not respond immediately in full, because it took a month or more for “hard” (i.e., non-survey-based) indicators to register sharply reduced economic activities.