Japan’s Growth Slows More Than Forecast to 1.1% on Investment

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Photographer: Kiyoshi Ota/Bloomberg

People are silhouetted as they look at light-emitting diode (LED) illuminations ahead of Christmas in Tokyo on Dec. 5, 2013.

Japan’s growth slowed more than initially estimated in the third quarter and the current account unexpectedly fell into deficit in October, highlighting headwinds for Abenomics.

Gross domestic product expanded an annualized 1.1 percent from the previous quarter, a revision from 1.9 percent, the Cabinet Office said today in Tokyo. The shortfall in the broadest gauge of trade was 128 billion yen ($1.2 billion), the Finance Ministry said. Only four of 23 economists surveyed by Bloomberg News forecast a deficit.

Weaker-than-estimated business spending contributed to the revision to the GDP figures, indicating that Japan Inc. is yet to be convinced that Abenomics will trigger a prolonged economic revival. Prime Minister Shinzo Abe said in an interview last week that he wants a “virtuous cycle,” where growth propels corporate profits, employers raise compensation and workers spend more.

“Companies are quite cautious about the outlook for the economy,” said Junichi Makino, chief economist in Tokyo at SMBC Nikko Securities Inc.

The Topix stock index closed 1.6 percent higher after better-than-forecast U.S. jobs data last week. The yen fell 0.1 percent, trading at 103.05 per dollar as of 6:45 p.m. in Tokyo.

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Business Spending

Business spending was unchanged in the third quarter from the previous period, down from a preliminary estimate of 0.2 percent growth. A smaller contribution from inventories also played a role in the GDP growth revision, according to the Cabinet Office.

The cabinet last week approved an 18.6 trillion yen package to cushion the blow to consumption from a 3-percentage-point sales-tax increase scheduled for April. The measures include 5.5 trillion yen in spending and are projected by the government to boost GDP by about 1 percent and create about 250,000 jobs.

Today’s data show the economy’s expansion slowed from an annualized 3.6 percent in the April-June quarter. Growth will be 3.6 percent this quarter and 4.8 percent in the January-March period, before a 4.5 percent contraction in the second quarter of 2014, according to Bloomberg News surveys of economists.

Abe said in a Dec. 6 interview that it is “extremely important that wages rise” for the nation to escape 15 years of falling prices.

Record Imports

The deficit in the current account was the first since January, and the biggest for October in comparable data back to 1985. The value of imports rose to a record for the month, swelled by weakness in the yen and energy costs.

Photographer: Kiyoshi Ota/Bloomberg

Pedestrians cross an intersection in the Shibuya district of Tokyo. The economy is projected to grow 3.6 percent this quarter and 4.8 percent in the January-March period, according to a separate Bloomberg News survey. Close

Pedestrians cross an intersection in the Shibuya district of Tokyo. The economy is... Read More

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Photographer: Kiyoshi Ota/Bloomberg

Pedestrians cross an intersection in the Shibuya district of Tokyo. The economy is projected to grow 3.6 percent this quarter and 4.8 percent in the January-March period, according to a separate Bloomberg News survey.

The income surplus, the portion of the current account that includes earnings from overseas investment, was smaller than expected, according to economist Yoshimasa Maruyama.

“The current-account balance will bounce between surplus and deficit in the months ahead,” said Maruyama, chief economist at Itochu Corp. in Tokyo. “Strong demand for imported goods before the sales-tax increase may run its course this quarter, while exports will likely rebound gradually.”

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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

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