Japan¡¯s economy grows in July-September

Discussion in 'Economics' started by curis, Nov 15, 2006.

  1. curis



    Japan¡¯s economy expanded for the seventh straight quarter in the second fiscal quarter, as surprisingly robust corporate investment added to a boom that¡¯s growing to be the longest stretch of expansion for the nation since World War II.The world¡¯s second largest economy grew at an annualized 2.0 percent for the July-September period, or at a pace of 0.5 percent on quarter, according to government data released Tuesday, beating the forecast by economists surveyed by Dow Jones Newswires for a 1.1 annualized gain, or 0.3 percent on quarter rise.

    The healthy reading matches the continuous growth Japan marked during its years of modernization in the 1960s, but the recent expansion has been far more moderate, underlining the delicate expansion for a mature economy.

    ¡°Japan is like a jet that¡¯s flying steadily although at a lower altitude than in the past,¡± said Masaaki Kanno, chief Japan economic at J.P. Morgan Securities in Tokyo.

    Japan, which slipped in and out of slowdowns before the latest continuous recovery, has gotten over the worst in wiping out the massive bad debts at banks, and the balance sheets at companies have been improving, Kanno said.

    ¡°Japan¡¯s economy isn¡¯t about to crash that easily. There are no major risks,¡± he said.

    Although private consumption, which accounts for more than half of Japan¡¯s economy, shrank 0.7 percent on quarter in the three months ended Sept. 30, capital investment grew a stunning 2.9 percent, according to data from the Cabinet Office.

    In previous decades, Japan relied mostly on exports, especially to the United States, to keep growth going, but spending by consumers and companies are instead bolstering growth in recent years.

    The Cabinet Office said exports grew 2.7 percent in the July-September period, mostly on booming exports of electronic and telecommunication products, offsetting weak private consumption.

    The latest data are so solid, growth could even stay flat during the second fiscal half to achieve the government target of 2.1 percent growth for the fiscal year ending March 2007, said Masayuki Goto of the Cabinet Office.

    Other government officials welcomed the news.

    ¡°This confirms our view that overall economic recovery remains on track,¡± said chief government spokesman Yasuhisa Shiozaki.

    The Tokyo stock market also got a cheered by the GDP news. The benchmark Nikkei 225 index added 1.34 percent in morning trading.

    Kazuo Mizuno, chief economist for Mitsubishi UFJ Securities Co., said now that the worries about a slowdown are over, the new worry is about the economy overheating, signaling that the Bank of Japan may hasten its next interest rate hike.

    Compared to the 1960s, Japan¡¯s growth is much more dependent on the U.S. economy as well as the modernization of nearby China, both important destinations for Japanese exports and investments.

    ¡°It¡¯s not like things are getting all that better here within Japan,¡± Mizuno said, adding the paychecks of workers here weren¡¯t growing any fatter. ¡°The growth these days is all about the expansion of the global economy.¡±

    Analysts were divided on when the Bank of Japan may raise interest rates. The central bank raised the benchmark interest rate from zero to 0.25 percent in July but has kept it unchanged since then.

    The Bank of Japan has been worried about a downward spiraling of prices called deflation, which poses a big danger to growth, and had kept interest rates at zero to encourage lending and economic revival.

    Credit Suisse chief Japan economist Hiromichi Shirakawa was doubtful the Bank of Japan would lift interest rates right away, given that Tuesday¡¯s data showed private consumption was sluggish.

    ¡°The BOJ knows consumer prices won¡¯t rise unless consumption becomes stronger,¡± he told Dow Jones. ¡°The earliest possible timing of rate hike would be January.¡±