Japan sees best growth in three years
By David Pilling in Tokyo
Japan’s economy grew at an annual rate of 5.5 per cent in the fourth quarter of last year – its best performance in three years – the government said on Monday after revising earlier estimates.
The government previously pegged growth at 4.8 per cent, still a substantial leap from the previous weak quarter’s annualised growth of 1.2 per cent.
However, the more rapid growth is unlikely to change market expectations that the Bank of Japan, which holds a two-day policy meeting on March 19-20, will be in no hurry to increase interest rates.
The solid performance was widely predicted but helped push the Nikkei 225 average up 0.75 per cent to 17,292. Japanese stocks, hit hard by the recent global market turmoil, have gradually recovered thanks partly to continued yen weakness.
Following the Shanghai stock market’s sharp declines, which triggered global falls, the yen strengthened from about Y120 to the dollar to nearly Y115. On Monday, it was back down at about Y118.5, raising hopes that Japan’s export boom could continue.
Kiichi Murashima, chief economist at Nikko Citigroup in Tokyo, said the early signs for the current quarter were good, with January data even showing a promising recovery in consumption. A recent household survey showed spending up 0.6 per cent year-on-year, the first such rise since December 2005.
Mr Murashima said people might be spending more because of an effective but temporary Y3,000bn ($25bn) tax windfall.
Domestic consumption has been the main engine missing from the recovery as exports and capital investment have continued to lead Japanese growth. In the December quarter, capital spending rose 3.1 per cent against the previous three months. Consumption was up a more modest 1 per cent against the quarter to September.
A lack of strong consumer demand, plus falling energy prices, have held down growth in the headline core consumer price index, which in January fell to zero. Markets expect the core CPI for February, released later this month, to show a change of either –0.1 or –0.2 per cent.
Takeshi Minami, chief economist at Norinchukin Research Institute, told Reuters: “The BOJ won’t raise rates for a while if it thinks about prices, though it seemed to place greater emphasis on rectifying ultra-low rates and preventing an asset bubble when it raised rates last month than on recent indicators.”
Defending the Bank of Japan’s decision to raise interest rates last month in spite of weak prices, Eisuke Sakakibara, former finance vice-minister, said recently it was wrong to characterise Japan as falling back into deflation.
Prices were falling because of structural factors, including more use of part-time labour and fierce competition in the domestic electronics industry, he said.
