Japan's Economy Grows Faster Than Initial Estimate

Japan’s economy expanded more than the government initially estimated in the third quarter because of a bigger-than-expected increase in capital spending.

Gross domestic product grew at an annualized 4.5 percent rate in the three months ended Sept. 30, faster than the 3.9 percent reported last month, the Cabinet Office said today in Tokyo. The median forecast of 19 economists surveyed by Bloomberg News was for a 4.1 percent expansion.

Private consumption, which accounts for about 60 percent of GDP, also fueled the expansion as households stepped up purchases of energy-efficient cars ahead of the expiration of a subsidy program. After a strong third quarter, Japan’s economy is likely to contract this quarter because of slowing exports and the yen’s appreciation depressing corporate profits.

“The third quarter could be the peak of the expansion and Japan may go into a mini-economic stagnation this quarter,” Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo, said before the report. “Corporate earnings may deteriorate as the boost from the government’s stimulus steps is waning and the global economy is slowing.”

The yen traded at 84.10 per dollar at 9:01 a.m. in Tokyo from 84.09 before the report was published. The Japanese currency has still gained 2 percent since authorities tried to stem the yen’s advance by intervening in currency markets on Sept. 15. The Nikkei 225 Stock Average rose 0.5 percent.

Japan’s economy has grown for four straight quarters. From the previous quarter, it expanded 1.1 percent, faster than the 0.9 percent rise that was initially reported last month, today’s report showed. The figure compares with a 0.6 percent expansion in the U.S. and a 0.4 percent gain in Europe.

Canon Plant

Canon Inc., the world’s biggest camera maker, said last week it will spend 30 billion yen （$357 million） by 2015 to build a toner-cartridge plant in Oita prefecture, southern Japan.

“Business investment is on a gradual recovery track,” said Kohei Okazaki, an economist at Nomura Securities Co. in Tokyo. Yet, “there’s no change in the picture that a temporary boost in consumer spending was the main cause for the high growth in the third quarter,” he said.

In addition to the added demand as a result of the stimulus measures, consumer spending gained in the third quarter as smokers stocked up before an Oct. 1 tobacco-tax hike and the nation’s hottest summer in more than a century encouraged purchases of air conditioners.

“The economic growth won’t be sustainable in the coming quarters,” Susumu Kato, chief economist for Japan in Tokyo at Credit Agricole CIB and CLSA. “There’s a high chance that the economy will contract this quarter as consumption may retreat and exports slow.”

GDP Contraction

Japan’s GDP is expected to contract at a 1.9 percent annualized pace in the three months through December, according to a survey of 42 economists by the Japanese government- affiliated Economic Planning Association released yesterday.

The Japanese parliament last month passed an extra budget to fund Prime Minister Naoto Kan’s stimulus package aimed at fighting deflation and combating the stronger yen. To foster growth, the Bank of Japan cut its benchmark interest rate and created a 5 trillion yen fund to buy assets, including government bonds, corporate debt, real estate investment trusts and exchange-traded funds, in October.

“As long as deflation persists, the BOJ will need to maintain its accommodative monetary policy for some time,” Credit Agricole’s Kato said.

The yen’s 10 percent gain against the dollar this year is threatening earnings of Japanese companies.

A survey of 353 Japanese companies excluding financial firms showed that companies expect recurring profits to increase 13.3 percent on average in the year starting April 2011, slower than the September estimate of a 19.8 percent gain, according to a Nomura Holdings Inc. report released this month.

Nikon Corp., the Japanese maker of cameras, lenses and chip-making equipment, last month cut its full-year operating profit forecast by 7.7 percent compared with the previous estimate, citing a stronger yen.