Japan Economy Expands 3.7%

Japan’s economy grew for the first time in five quarters as a revival in exports and consumer spending helped the country climb out of its worst postwar recession.
TradingEconomics.com, Bloomberg 8/16/2009 10:00:51 PM

Gross domestic product expanded at an annual 3.7 percent pace in the three months ended June 30, following an 11.7 percent decline in the previous quarter, the Cabinet Office said in Tokyo.

The recovery may not be sustained once the $2 trillion in worldwide stimulus that propped up sales for exporters from Toyota Motor Corp. to Kubota Corp. runs out. Some 40 percent of factories still sit idle, forcing companies to cut costs and leaving the winner of an Aug. 30 election with the challenge of staving off unemployment that’s approaching a record high.

From the previous quarter, the world’s second-largest economy grew 0.9 percent. Economists estimated 1 percent.

Exports led the expansion, jumping 6.3 percent from the previous three months. Net exports, or overseas shipments minus imports, contributed 1.6 percentage points to quarter-on- quarter growth.

The resurgence in demand from abroad wasn’t enough to convince companies to spend more on plant and equipment. Business investment, which makes up about 15 percent of the economy, fell 4.3 percent last quarter, today’s report showed.

Consumer spending, which accounts for more than half of the economy, rose 0.8 percent, adding 0.5 percentage point to the expansion, the Cabinet Office said. Prime Minister Taro Aso’s 25 trillion yen ($263 billion) in stimulus has lifted household confidence to its highest level since 2007.

The packages, which include incentives to encourage the purchase of eco-friendly products, are the main reason Toyota is predicting its domestic sales will rise for the first time in five years.

Aso’s ruling Liberal Democratic Party is likely to lose the lower house election to the opposition Democratic Party of Japan, which has never held power before. Some 43 percent of voters support the DPJ, almost double the 26 percent of those who support the LDP, a Nikkei Inc. and TV Tokyo Corp. poll released this month showed.

Emergency spending by governments worldwide has buoyed sales makers of cars and electronics, and companies including Nippon Steel Corp. are filling orders from manufacturers restocking inventories depleted during the recession. Kubota is selling more farming equipment in China.

Bank of Japan Governor Masaaki Shirakawa said last week the recovery may not be strong and there’s no guarantee that demand for the country’s products and services will gain momentum. The central bank will keep the benchmark interest rate at 0.1 percent at least through 2010, according to economists surveyed by Bloomberg.

Economists predict low production levels will drive the jobless rate to a record 5.8 percent next year from the current 5.4 percent. Japanese workers are also suffering unprecedented wage cuts that are likely to damp spending once the effect of the government’s stimulus package tapers off.

Cost cuts by corporate Japan are taking a toll on companies such as Canon Inc. The nation’s biggest maker of office equipment last month forecast sales will drop 22 percent this year as clients limit spending on copiers and other business tools. To cope with that, Canon said it will pare its own expenses by 220 billion yen.

Japan Economy Expands 3.7%