Back in the black:
Japan surges
By Andrew Cornell, Tokyo
Japan's economy surged back into positive territory in the
March quarter for the first time in 18 months, growing at
an annualised rate of an extraordinary 7.9 per cent.
Stronger-than-expected capital expenditure and private
consumption allowed the economy, as measured by
gross domestic product, to expand1.9 per cent more
than double the highest market expectations.
The release of the shock data had an immediate effect on
foreign exchange markets, with the Japanese yen and the
Australian dollar rising sharply against the US dollar.
The yen moved from 119.50 to 117.57 against the $US
after the data was progressively leaked into the market,
while the Australian currency surged more than half a US
to US66.20.
Despite the strong data, the Japanese Government's
Economic Planning Agency remained cautious. It said
future declines could not be ruled out.
Mr Takafusa Shioya, the deputy director general of the
EPA, said government steps to support the economy
were the main factors supporting growth in the period.
Government spending grew 10.3 per cent in the quarter,
after 10.6 per cent growth previously.
Economists, who on average predicted 0.23 per cent
GDP growth, were quick to cast doubt on the integrity of
the number, which would rank Japan among the
fastest-growing economies in the industrialised world.
"There is no way the economy grew 1.9 per cent in the
first quarter," said an ING Barings economist, Mr
Richard Jerram.
"However, there is also no way the economy shrank 0.8
per cent in the last quarter. What this shows is there is no
connection between Japanese GDP and the Japanese
economy," he said.
"If the economy grew that fast, you would have seen it
and there was no sign of it in the first quarter."
A Warburg Dillon Read economist, Dr Brian Rose, said
although the number itself was unbelievable, there was
room for a surprise on the upside.
Leaked reports of the astonishing GDP growth fired the
benchmark Nikkei 225 market index through 17,000
points for the first time since May 6 while the yen
appreciated 2 against the dollar.
Most surprising in the data was the domestic component
of the growth, up 2.2 per cent compared with a 0.5 per
cent fall for the previous quarter. Stronger-than-expected
corporate investment, housing and personal consumption
were behind it.
Along with private spending and housing investment,
corporate spending and imports were positive.
Economists were reluctant to make too much of the first
signs of growth in a year and a half, saying there
remained little sign of a self-sustaining recovery.
But there will now be a round of upgrades to forecasts
for the year ahead, with many economists likely to call an
end to the recession next quarter. Two successive growth
quarters are necessary for an official end to the recession
.
"This is what is called a technical recovery," said
Warburg Dillon Read's Dr Rose. "What it really means is
difficult to say, but it is a sign of something at least that
the serious decline of last year has stopped."
What concerns economists is that there is still little sign of
life outside the government support. It is now widely
assumed that as well as a special employment package to
be announced tomorrow, the Government will have to
announce a second supplementary Budget later in the
year of about 4.5 trillion.
"These fiscal stimulus measures already announced will
start to fade in the late [northern] summer and fall," said
Nikko Salomon Smith Barney economist Ms Yukari
Sato. "We are not very optimistic after that."
Ms Sato said she expected consumption to remain weak,
and Nikko SSB still did not expect the economy to
achieve the Government's forecast of 0.5 per cent growth
for the year ending March 2000.
Economists said the strong capital expenditure figures
that were behind the strong growth in the last quarter
would peter out as almost all corporate surveys had
shown Japanese companies planned to cut back on
capex this year.
Machinery order data, also released yesterday, was
worse than expected at -14 per cent month on month
compared with market forecasts of -2 to -12 per cent.
Core machinery orders to Japanese makers fell by an
adjusted 13.8 per cent in April from the prior month to
758.43 billion the lowest amount for a single month in
nearly 12 years, the Economic Planning Agency said
Thursday.
Machinery orders are widely regarded as a leading
indicator of corporate capital investment.
afr.com.au
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