Feb. 15 (Bloomberg) -- Japan’s economy grew faster than economists anticipated last quarter, reducing the risk of falling back into a recession even as deflation intensifies.
Gross domestic product rose at an annual 4.6 percent pace in the three months ended Dec. 31, the Cabinet Office said in Tokyo today, more than the 3.5 percent median estimate of economists surveyed. The GDP deflator, the broadest measure of prices in the economy, fell a record 3 percent.
Exports led the expansion, aided by a global recovery that prompted manufacturers from Panasonic Corp. to Nissan Motor Co. to raise their profit forecasts this month. An increase in consumer spending may not last as government stimulus measures fade and households expect prices to keep falling along with their wages, said economist Hiroshi Miyazaki.
“The benefits from the global recovery are spilling over,” said Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. “The economy will keep recovering even if the government does little to fight deflation, but the risks are heightening that growth ahead will be slow.”
The yen traded at 90.17 per dollar at 11:45 a.m. in Tokyo from 90.03 before the report. The currency has gained 5 percent in the past six months, eroding exporters’ earnings. The Nikkei 225 Stock Average fell 0.4 percent, extending this year’s losses to 4.7 percent.
Third-Quarter Revision
The world’s second-largest economy expanded 1.1 percent from the previous quarter, today’s report showed, more than the 0.9 percent median estimate of economists surveyed.
Third-quarter GDP was revised to zero from an annualized 1.3 percent growth, reflecting a change in how the Cabinet Office calculates exports and imports on a seasonally adjusted basis to account for the global trade collapse in 2008.
Overseas shipments increased 5 percent from the previous three months, the report said. Net exports, or shipments minus imports, added 0.5 percentage point to growth.
“This data suggests there’s a possibility the economy is heading toward a self-sustained expansion,” Keisuke Tsumura, a parliamentary secretary at the Cabinet Office, told reporters in Tokyo today. Even so, “deflation remains severe,” he said.
The GDP deflator’s year-on-year decline was the biggest since records began in 1955. Without adjusting for price changes, Japan grew an annualized 0.9 percent from the previous quarter.
Bank of Japan
The Bank of Japan, amid pressure from politicians, stepped up its fight against deflation in December, saying it “does not tolerate” price declines. Governor Masaaki Shirakawa and his colleagues, who will decide policy on Feb. 17-18, will keep the benchmark interest rate at 0.1 percent for all of 2010, according to all 17 economists surveyed by Bloomberg last month.
“It’s likely that the Finance Ministry will put more pressure on the BOJ to implement more accommodative policies, highlighting today’s figures that point to deflation,” said Miyazaki at Shinkin Asset. “That pressure is likely to run the BOJ into a corner.”
Compounding the woes from deflation, in the past month Standard and Poor’s has warned that the nation’s debt rating may be cut and Toyota Motor Corp., the country’s biggest automaker, has recalled 8 million vehicles because of accelerator and brake problems.
Finance Minister Naoto Kan said yesterday that the government will next month begin debating whether to overhaul the sales tax amid concerns about the widening deficit.
Upper-House Election
Chief Cabinet Secretary Hirofumi Hirano said today that the government must do its utmost to avoid another recession. Prime Minister Yukio Hatoyama, whose Democratic Party of Japan faces an upper-house election in July, received parliament’s approval for a 7.2 trillion yen ($80 billion) stimulus package last month.
Asia spearheaded the export revival, led by China, Japan’s biggest overseas customer, which grew the most since 2007. U.S. demand is also improving after the nation’s GDP expanded the most in six years last quarter. Still, a report last week showed Europe’s economy almost stalled in the period, underscoring the frailty of the world recovery.
Panasonic, the world’s largest maker of plasma televisions, raised its operating profit forecast by 25 percent this month. Flat-panel TV sales rose 48 percent from a year earlier, driven by purchases in regions including China and South America.
Return to Profit
Nissan Motor predicted a return to profit this fiscal year, scrapping an earlier loss estimate, citing government incentives that boosted demand for vehicles in China and Japan. The country’s third-largest carmaker expects net income of 35 billion yen in the year ending March 31, compared with an earlier forecast of a 40 billion yen loss.
Spending by consumers, which accounts for more than half of the economy, rose 0.7 percent in the fourth quarter, today’s report showed. Business investment climbed 1 percent, the first positive reading in seven quarters.
The gain in capital spending “signals a turning point in the economy toward a sustainable recovery,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo.
Even as exports improve, Japan’s expansion may lose momentum as the effects of stimulus spending at home fade.
“Consumption has been sluggish if you exclude purchases of autos and flat-panel televisions, which have received a direct boost from government stimulus,” said Ryutaro Kono, chief economist at BNP Paribas in Tokyo. “Many households perceive income declines since late 2008 not just as a result of the economy’s growth cycle but as permanent declines.”
To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Tatsuo Ito in Tokyo at tito@bloomberg.net.
