Japan Revises Growth to Annual 4.1% in Boost for Abe’s Campaign
Japan’s economy grew more than the government initially estimated in the first quarter, helping Prime Minister Shinzo Abe to sustain confidence in his campaign to defeat deflation.
Gross domestic product expanded an annualized 4.1 percent, compared with a preliminary calculation of 3.5 percent, the Cabinet Office said in Tokyo today. Nominal GDP, which is unadjusted for changes in prices, rose 0.6 percent from the previous three months, leaving the economy 7 percent smaller than in the same period in 1997. Consumer confidence in May was at its highest level since 2007, a Cabinet Office survey showed.
Stocks surged, aiding Abe’s efforts to maintain momentum as the government moves on to the “third arrow” of Abenomics, the growth strategy to accompany monetary and fiscal stimulus. While BOJ policy makers are meeting today and tomorrow, their policy moves may be constrained by Governor Haruhiko Kuroda’s pledge to avoid “incremental” steps after unveiling unprecedented easing in April.
“This is what Mr. Abe needs for major structural changes this year,” Martin Schulz, an economist at Fujitsu Research Institute in Tokyo, told Bloomberg Television. With a consumption-tax rise looming next year, the economy is in a “sweet spot” that gives the administration the window to pursue its growth agenda after July elections, he said.
The current-account surplus for April was 750 billion yen ($7.6 billion), the finance ministry said in a separate release. Boosted by investment income, that was more than double the 350 billion yen median estimate of analysts.
The Topix index was up 5.2 percent today in Tokyo, the biggest rise since March 2011, after a better-than-forecast U.S. jobs report boosted confidence in the outlook for the world’s biggest economy. Toyota Motor Corp. jumped 8.6 percent, the most since March 2011.
The gauge plunged 6.9 percent on May 23, part of market volatility that has also spanned bonds and the currency, threatening to undermine confidence in the government’s efforts to drive a sustained recovery.
Capital investment fell 0.3 percent in the first quarter from the previous three months, compared with the government’s initial estimate of a 0.7 percent decline, today’s report showed. Domestic demand rose 0.6 percent, up from an earlier calculation of 0.5 percent.
The yen fell 1.1 percent to 98.64 per dollar as of 6:47 p.m. in Tokyo, down more than 16 percent in the past six months. Weakness in the currency boosted the April current-account surplus by increasing income from companies’ investment abroad, said Long Hanhua Wang, an economist at Royal Bank of Scotland Group Plc in Tokyo.
Consumer confidence rose to 45.7 in May, the highest since May 2007. That contrasted with a decline to 56.2 in May from a record high of 57.8 in April for a separate survey that measures the expectations that workers such as taxi drivers and restaurant workers have for the economy.
The first-quarter expansion compared with a 1.2 percent gain in the fourth quarter. Today’s data came as Kuroda chairs his fourth monetary-policy meeting after taking over from Masaaki Shirakawa.
The Bank of Japan is divided over whether to authorize a measure designed to quell bond-market volatility, with some officials concerned it would return the BOJ to a pattern of incremental steps that failed in the past, people familiar with the discussions said recently.
At issue is whether the board should give its financial markets department the power to double the maturity of loans it extends to banks to two years. An opposing view is that the step is a useful backup in case of a spike in fluctuations in the government bond market, the people said, asking not to be named because the talks are private.
Abe, meanwhile, said last week that August is the earliest that his government will present legislation for the growth strategy, which includes efforts to boost investment and curb regulations stifling business. Installed as prime minister after his Liberal Democratic Party won a landslide victory in the lower house of parliament in December, Abe faces a July election for the less powerful upper house.
Financial markets may put more pressure on Abe, according to Hideo Hayakawa, 58, a former BOJ executive director who oversaw the financial system until March.
“For now it’s just a yellow card but it’s possible there will be a red card and stocks will decline more,” Hayakawa said in an interview in Tokyo on June 7, citing market volatility. “His failure to announce a solid growth strategy triggered these market reactions and the question is whether he will properly acknowledge this fact.”
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