Japan Economy Surges 1.9% in Last Quarter; Government
Downplays Strength
By Demetri Sevastopulo with reporting by Nathan Westby, Mayumi Otsuma, Mikako Nakajima and
Kae Inoue
Japan Economy Unexpectedly Surged 1.9% in Last Qtr (Update2)
(Adds new lead paragraph, comment in 2nd, BOJ intervention in
4th paragraph and rewrites throughout.)
Tokyo, June 10 (Bloomberg) -- Japan's economy grew at its
fastest pace in three years last quarter -- fueled by unexpectedly
strong consumer and corporate spending -- in an astonishing
turnaround that the government warned should not be mistaken for a
full-blown recovery.
Gross domestic product -- the total value of goods and
services produced -- rose a stronger-than-expected 1.9 percent,
compared with a drop of 0.8 percent in the previous quarter.
Economists surveyed by Bloomberg News expected an expansion of just
0.1 percent.
''Private consumption and private capital expenditure are
incredible, as in unbelievable,'' said Richard Jerram, head
economist at ING Barings Securities Ltd., who expected GDP to be
unchanged last quarter. ''It's positive news in the sense that the
economy is growing, but we can't get any more excited than that.''
Government officials played down the GDP number, saying they
need to see more evidence of a recovery from the country's longest
recession since World War II. Currency traders said the Bank of
Japan bought dollars to halt a sudden rise in the yen -- something
the government declined to confirm - which occurred after the GDP
numbers were released.
''If the central bank intervened that means the Ministry of
Finance is not convinced of a recovery,'' said Shuji Shirota,
senior economist at Societe Generale Securities Ltd. ''If they were
convinced, they wouldn't care if the yen rises.''
Details
Spending by companies rose 2.5 percent in the January-March
period from the previous quarter, while housing investment rose 1.2
percent, the EPA said. Consumer spending rose 1.2 percent from the
previous quarter, the first increase in a year.
''People shouldn't get so excited by the numbers for just one
quarter,'' said Taichi Sakaiya, head of the Economic Planning
Agency that released the GDP figures. ''We will have to look
closely at GDP in the next quarter.''
Stocks rose before the report was released as the GDP figures
were published by the Nikkei Quick news service. The benchmark
Nikkei 225 stock index rose 2.9 percent to 17,102, its highest in a
month.
The dollar fell more than a yen in value as soon as the
figures were released, though it later rose after the Bank of Japan
bought dollars, traders said. The yield on the benchmark No. 213
Japanese government bond rose 5.5 basis points to 1.625 percent on
concern a return to growth could lead to inflation.
The GDP turnaround increases the odds that Prime Minister
Keizo Obuchi's government will reach its target of 0.5 percent
growth in the year ending next March.
The government's stance on the GDP figures suggest that an
extra budget to boost spending on public works spending -- which
rose 10.3 percent last quarter -- is still on the cards.
Whether the government postpones or delays extra spending to
pay for more public works ''depends if they believe their own
numbers or not,'' said Jerram. ''You would hope that they don't get
too carried away with today's number.''
Spending Conundrum
Yet some members of the government are likely to object to
more spending given the apparent strength of today's number.
''With today's figures, legislators will probably take time in
pondering the size of a new spending package,'' said Mamoru
Yamazaki, senior economist at Paribas Capital Markets Ltd. ''It's
unlikely the size of spending will be boosted.''
To spur growth and stem the rising jobless rate -- now at a
record 4.8 percent -- the government is preparing to spend as much
as 10 trillion yen ($82.6 billion) through public works spending
and job creation, legislators and officials have said.
Surprisingly high spending on facilities and equipment boosted
the economy in the last quarter but the government said that this
may not be a self-sustaining trend.
Small- and medium-sized companies have benefited from a
government emergency plan providing 20 trillion yen in loan
guarantees to help secure financing as the nation's banks curbed
lending causing bankruptcies to soar. About 16 trillion yen in
guarantees have already been provided.
A recent stream of restructuring announcements by the likes of
Sony Corp., NEC Corp., Omron Corp., Mitsubishi Electric Corp. and
All Nippon Airways Co. has fueled concern that increasing
unemployment and falling income will keep consumer confidence
anemic. Today's numbers back up recent evidence that smaller
companies are starting to help the economy.
''There has been too much focus on restructuring by large
companies,'' said Peter Morgan, senior economist at HSBC Securities
Japan Ltd. ''The easing of the credit crunch in recent months has
led to a significant rebound of capital spending by smaller
firms.''
Small Businesses
Yet large listed companies only employ about one in ten
workers. Smaller companies -- the backbone of the economy -- may
now begin hiring and help steer Japan onto the road to recovery.
''Small companies are swimming in so much cash that they could
start investing in the stock market if they wanted,'' said Koichiro
Eguchi, spokesman for the National Federation of Credit Guarantee
Corp., which is responsible for approving applications for the
government guarantees.
Banks have accepted 7.5 trillion yen in capital injections
under the government program, said Eguchi. This gives companies
room to start increasing spending on equipment and facilities.
Consumer spending -- which accounts for 60 percent of the
economy -- remains the key to a strong recovery. In the January to
March quarter, consumer spending rose 1.2 percent, the first rise
in a year.
''Consumer spending is still suffering from falling incomes
and rising unemployment but it appears to have improved somewhat
from the beginning of the year,'' said Isao Nakauchi, founder and
chief executive officer of Daiei Inc., Japan's second largest
supermarket operator.
''The rise in spending may have been due to strong housing
starts as consumers increased spending on services,'' said Michael
Naldrett, an economist at Dresdner Kleinwort Benson
Housing investment rose 1.2 percent in the January-March
quarter from the previous quarter, amid low interest rates and tax
breaks on mortgage payments.
''Overall demand will continue at least until June as
consumers can take out low interest rate mortgages,'' said Hidehiro
Yamaguchi, spokesman for Sekisui House, a large Osaka-based housing
developer, last month. |
