Japan May Revise First-Quarter GDP to 4.4% After Spending Rose

Japan’s economy probably expanded more than the government initially estimated last quarter after a report today showed better-than-expected capital expenditure in the first three months of the year.

Gross domestic product grew at a 4.4 percent annual pace, compared with a preliminary reading of 4.1 percent, according to the median forecast of six economists surveyed by Bloomberg News after the Finance Ministry reported that capital spending excluding software rose 3.5 percent from a year earlier. The report is due June 8 at 8:50 a.m.

The outlays may help sustain expansion this quarter in an economy where public reconstruction spending to recover from last year’s earthquake has been driving growth. At the same time, Japan is at risk from a deepening European debt crisis that is spurring gains in the yen that could weigh on exporters’ profits.

“Today’s report confirms that Japan’s economy is nearly fully recovered from last year’s disaster,” said Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo and a former central bank official. “However, uncertainty has definitely heightened due to the turmoil in Europe and the weak data from the U.S. and China.”

This second straight quarterly increase in capital spending compared with a median estimate of a 0.1 percent decline in a Bloomberg News survey of seven economists.

Economists’ revised forecasts ranged from 4 percent to 5 percent. Adachi revised his forecast up to 4.5, while Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo, said first quarter growth would be 4.4 percent.

‘Staying Solid’

“The overall picture for capital spending continues to be a gradual recovery,” said Nishioka, a former central bank official. “Shipments to the U.S. are staying solid and it’s clear that Japan’s major companies are recovering” from the earthquake, she said.

Companies including Panasonic Corp. (6752) and Nippon Steel Corp. (5401) are preparing power-saving measures as the government forecasts electricity shortages due to the closure of all nuclear power plants and will request users to cut consumption this summer. A government panel deliberating on Japan’s energy supply after the Fukushima disaster proposed four scenarios on May 29, including one to go nuclear free, for a final decision by the summer.

Europe’s Crisis

The European debt crisis and concerns that Greece may exit the euro are increasing demand for the yen as a haven. The yen has climbed more than 6 percent against the dollar from this year’s low in mid-March toward October’s record high of 75.35, weighing on export sales and profits for manufacturers.

The yen traded at 78.45 as of 2:38 p.m. in Tokyo, after touching 78.21 yesterday, the strongest since Feb. 15. Finance Minister Jun Azumi told reporters in Tokyo today that the government is watching excessive yen moves, and that the yen and stock markets do not reflect the fundamentals of the economy.

Vice Finance Minister Takehiko Nakao, the nation’s top currency official, said this week in an interview in Hong Kong that the finance ministry will take action on the yen if necessary, suggesting the door is open to intervention to weaken the currency.

To contact the reporter on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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