Japan’s Economy Expands Less Than Initially Estimated

Japan’s economy expanded less than estimated in the fourth quarter and the current-account deficit widened to a record in January, highlighting risks to Abenomics as a sales-tax increase looms.

Gross domestic product grew an annualized 0.7 percent from the previous quarter, the Cabinet Office said today in Tokyo, less than a preliminary estimate of 1 percent and a 0.9 percent median forecast in a Bloomberg News survey of 20 economists. The current-account deficit widened to 1.59 trillion yen ($15.4 billion), a record in data back to 1985, the finance ministry said.

While growth is set to surge this quarter before the bump in the sales levy next month, a sentiment survey released today highlighted expectations for a sharp pullback when businesses and consumers face the higher burden. Prime Minister Shinzo Abe is due to detail growth measures in June to sustain momentum, while economists forecast the Bank of Japan will add to unprecedented easing to keep the world’s third-biggest economy on track for a 2 percent inflation target.

“Capital spending remains weak and exports are not coming back to strengthen the recovery, and without support in these areas, Japan’s economy is going to contract significantly in the second quarter,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “The negative effect from the sales tax rise could be worse than the BOJ and government expect.”

Net Creditor

The Topix index of shares fell for the first time in five days after growth missed estimates, closing down 0.8 percent. The yen traded at 103.15 per dollar at 3:11 p.m. in Tokyo, up 0.1 percent.

Business investment rose 0.8 percent from the previous quarter, revised down from a preliminary 1.3 percent increase, today’s data showed. Consumer spending climbed 0.4 percent, less than an initial estimate of a 0.5 percent gain.

Abe jump started the economy last year with reflationary policies dubbed Abenomics. Record easing by the BOJ helped to push the yen down 18 percent against the dollar last year, boosting corporate profits and fueling economic growth.

The government in December approved a 5.5 trillion yen extra budget to offset the higher sales levy, which will rise to 8 percent in April from 5 percent now.

Sentiment Falls

Companies and consumers have rushed to make purchases before April, with industrial production rising the most in January since June 2011 and retail sales gaining at the fastest pace since April 2012.

Businesses are bracing for a drop in economic activity after the sales tax rise, according to a survey released today by the Cabinet Office.

Economic expectations of people such as taxi drivers, supermarket managers and restaurant workers fell in February by the most since March 2011, when the economy was struck by a record earthquake and tsunami, the Economy Watchers survey showed.

The expectations index fell to 40 from 49 in January, reaching the lowest since April 2011 and erasing all the improvement made after Abe took office in December 2012.

The BOJ, which concludes a two-day board meeting tomorrow, will keep its main policy target of expanding the monetary base at a pace of 60 trillion to 70 trillion yen per year, according to 33 of 34 economists surveyed by Bloomberg News.

Meiji Yasuda Life Insurance Co. forecasts the central bank will add to its record stimulus tomorrow, predicting a boost in the target range to 80 trillion to 90 trillion yen.

Thirty-eight percent of 34 economists forecast the BOJ will add to easing by the end of June, according to the Bloomberg survey, which was conducted from Feb. 26 to March 4.

Prolonged deterioration in Japan’s current-account balance would erode the nation’s position as a net creditor, one of its main credit strengths, Moody’s Investors Service said last month in a report.

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