Japan May Raise GDP Estimate as Spending Drop Eased
Japan May Raise Growth Estimate
Tomohiro Ohsumi/Bloomberg
The preliminary GDP report released last month showed the economy grew at the weakest pace in three quarters.
The preliminary GDP report released last month showed the economy grew at the weakest pace in three quarters. Photographer: Tomohiro Ohsumi/Bloomberg
Japan’s economy probably grew more than three times the government’s initial estimate, economists said after a report showed companies cut spending at the slowest pace since 2007 as a result of strong overseas demand.
Gross domestic product expanded 1.5 percent on an annualized basis last quarter, compared with a preliminary reading of 0.4 percent, according to the median forecast of 16 economists surveyed by Bloomberg News. A Finance Ministry report today showed capital spending fell 1.5 percent in the period, a figure that will be used to calculate revised GDP due Sept. 10.
A better GDP reading doesn’t change the outlook for the economy, which is under threat from the yen’s advance to a 15- year high against the dollar and slowing export growth, according to economists including Junko Nishioka. Sony Corp. Chief Executive Officer Howard Stringer said yesterday that the currency’s appreciation is a “huge handicap for us.”
“We don’t need to be too pessimistic about the current state of the economy,” said Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo, who forecasts GDP grew more than an annual 2 percent. “Looking ahead, the economy will likely lose steam as the strong yen and weak stocks may hurt companies.”
The yen traded at 84.27 per dollar at 4:23 p.m. in Tokyo from 84.32 before the report and a 15-year high of 83.60 reached on Aug. 24. The Nikkei 225 Stock Average rose 0.6 percent. Japan’s currency has climbed 10 percent against the dollar in the past three months as concern that the global recovery will falter boosted demand for it as a refuge.
Preliminary Report
The preliminary GDP report released last month showed the economy grew at the weakest pace in three quarters.
In a bid to shelter the nation from the yen’s advance, the Bank of Japan this week bolstered a credit program and Prime Minister Naoto Kan pledged fresh stimulus to help protect the economy ahead of the expiry of incentives to buy cars that have been supporting domestic demand.
Companies’ sales rose 20.3 percent in the second quarter, the biggest increase since 1980, today’s report showed. Profits climbed 83.4 percent, moderating from a record 163.8 percent gain in the first quarter.
Sales Rise
“Although corporate profits were boosted by an increase in sales, there’s a high chance sales growth will slow in coming months as exports lose momentum,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. “The economy will likely fall into a standstill later in the year.”
Bank of Japan Governor Masaaki Shirakawa and his board expanded a bank-loan program by 10 trillion yen ($119 billion) after an emergency meeting on Aug. 30. The government pledged to channel 920 billion yen to buttress domestic demand. Kan said on Aug. 27 that the government is “ready when necessary to take bold measures” in the currency market.
A stronger yen makes Japan’s exported goods more expensive for foreign buyers, which could prompt manufacturers to move production abroad to reduce currency risk, economists including Mizuho’s Tsuchiyama said.
“The rising yen is encouraging more companies to shift their business investment to emerging nations,” he said. “The pace of the recovery in capital spending at home will likely weaken considerably.”
Move Factories
Some 39 percent of manufacturers said they will move factories and development centers overseas should the yen stay at about 85 per dollar, a Trade Ministry survey of 200 companies showed last week. Sixty-one percent said they will expand overseas production.
Nissan Motor Co., Japan’s third-largest automaker, began selling a Thai-made March compact car in July to counter the rising yen. Panasonic, the maker of Viera televisions, said Aug. 20 it will move part of its plasma display panel production to Shanghai.
Japan’s economic recovery is losing steam because of an “uncertain” outlook for the global economy and slack domestic demand, Standard & Poor’s said on Sept. 1. It forecasts GDP will expand about 2.5 percent this year and growth will cool to 1.6 percent in 2011.
Still, earnings are improving as companies cut costs to protect profits and demand from emerging nations spurs sales.
Bridgestone Corp., the world’s largest tiremaker, last month raised its full-year net income forecast by 18 percent to 91 billion yen, citing cost reductions.
To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net
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