Japan's First-Quarter Growth Revised Higher on Consumer Spending, Housing
Japan’s economy expanded more than initially estimated in the first quarter, driven by exports and an upward revision to consumer spending.
Gross domestic product rose at an annualized 5 percent rate in the three months ended March 31, faster than the 4.9 percent reported last month and the biggest gain since the second quarter of 2009, a Cabinet Office report showed today in Tokyo. The median of 18 estimates in a Bloomberg News survey of economists was for a 4.2 percent pace.
Stocks rose as the report spurred speculation that Japan’s export-led recovery will withstand the European sovereign debt crisis. Companies from Elpida Memory Inc. to JFE Holdings Inc. are benefiting from demand in Asia, and that has begun to encourage spending at home even as deflation persists.
“The economic recovery is starting to spread,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute in Tokyo. “So it’s not just fast growth, it’s quality growth as well.”
The Nikkei 225 Stock Average rose as high as 0.7 percent and was up 0.3 percent at the lunch break in Tokyo. The gauge has slid 14 percent since the start of May on concern that the European sovereign debt crisis will hamper the global recovery. The yen traded at 91.16 per dollar from 91.24 before the report.
Last quarter’s expansion was better than all economists’ forecasts because a downward revision in business spending was smaller than they anticipated.
Japan has grown for four straight quarters, following the country’s worst postwar recession. From the previous quarter, it expanded 1.2 percent, the same rate as the Cabinet Office estimated last month. That’s faster than the U.S.’s 0.8 percent and a 0.2 percent gain in Europe.
Without adjusting for price changes, Japan grew a nominal 1.3 percent from the previous quarter, the most in a decade. The GDP deflator, a gauge of price trends, fell 2.8 percent from a year earlier, narrowing from 3 percent first reported.
Separate figures today showed Japan’s producer prices rose for the first time in 17 months in May, fueled by an increase in raw-material costs.
Faster growth may make it easier for new Prime Minister Naoto Kan to tackle the nation’s public debt, the largest in the world, without derailing the economy’s revival. His government will compile a plan to address fiscal constraints by the end of the month as Japan bids to avoid comparisons with Greece and the European Union.
“Unless exports deteriorate considerably or decline, Japan will probably sustain a recovery above its potential growth rate, supported by a pickup in domestic demand,” said Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc. in Tokyo. “The government needs to make its stance on fiscal reconstruction clearer and flesh out its growth strategy.”
Exports led the expansion last quarter, advancing 6.9 percent, unchanged from the initial estimate. Net exports, or shipments minus imports, added 0.7 percentage point to growth, the same as last month’s reading.
Elpida Memory is among manufacturers that are tapping Asian demand. The country’s sole maker of computer memory chips plans to build factories in Taiwan and China, and expects record profit and revenue this fiscal year, President Yukio Sakamoto said this week.
Consumer spending, which makes up more than half of the economy, climbed 0.4 percent from the previous quarter, compared with a 0.3 percent gain estimated last month, boosted by government incentives to purchase electronics and automobiles. Gains in housing investment were also revised to 0.4 percent from 0.3 percent.
Capital investment advanced 0.6 percent, slower than the 1 percent initially reported. That was still better than the 0.1 percent median estimate of economists surveyed.
Japanese companies are starting to boost spending on plant and equipment, even as the European debt crisis clouds the outlook for global growth, with a report yesterday showing machinery orders climbed for a second straight month in April.
JFE Holdings, Japan’s second-largest steelmaker, said last month that it plans to spend 1 trillion yen ($11 billion) over three fiscal years to tap rising demand in Asia as profitability increases.
“There’s no doubt that businesses will start increasing investment this fiscal year,” said Susumu Kato, chief economist for Japan in Tokyo at Credit Agricole CIB and CLSA. “But there’s little reason for them to rush as the uncertainties over the economy are increasing.”