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Japan's Q1 growth revised to 3.9% on increased capex

Some analysts see signs of economic revival but others point to rising import costs, low domestic consumption

Private consumption, accounting for 60% of Japan's GDP, rose only 0.4 per cent, unchanged from the initial data, in a sign households were cautious about spending on the back of sluggish wage growth.


JAPAN'S gross domestic product (GDP) expanded much more vigorously than previously indicated during the first quarter of this year, it was announced on Monday, suggesting that the tide may finally be turning for the better in the world's third largest economy, according to some analysts.

An upgrading of the contribution to growth made by corporate capital investment in the first quarter raised the official measure of growth to an annualised real 3.9 per cent compared with the preceding quarter from an initially estimated 2.4 per cent.

Optimism was tempered, however, by reports that GDP growth may have slackened again since the end of March, while the yen's continuing plunge against the US dollar and other currencies has raised concerns over rising import costs and over a possible backlash in currency markets.

The first-quarter jump in corporate capital spending appears to reflect the fact that some firms are "re-shoring" industrial production back to Japan from investment destinations such as China in the light of the yen's sharp drop and the consequent fall in Japanese export prices, some analysts said.

But the flip side of this is that the costs of imported raw materials and components or assemblies is rising. At the same time, the yen's fall to a 13-year low of around 125.3 to the US dollar has spurred fears of some form of retaliation by Japan's key trading partners.

Reflecting these concerns, the Nikkei-225 stock average eased slightly on Monday, to close marginally lower at 20,457.19, after an initial rise triggered by the revised GDP data.

Japan's economy expanded for a second consecutive quarter in the first three months of this year, with first-quarter growth comfortably exceeding an upwardly revised one per cent during the final quarter of 2014 on a "real" or inflation-adjusted basis.

The economy "is returning to a growth orbit", Prime Minister Shinzo Abe's spokesman Yasuhisa Kawamura was reported by Reuters as saying during a summit of Group of Seven leaders meeting in Germany on Sunday.

The upgraded GDP data followed publication of a Ministry of Finance survey last week, which showed corporate capital spending grew in Japan during the January-March period at the fastest pace in a year.

Corporate capex is a key component of GDP and has lagged in Japan until recently because of a period of weakness in domestic consumption following a hike in the national sales tax in April 2014. Japanese exports also went through a period of prolonged weakness until recently.

A government official attributed the latest upgrade in GDP to strong corporate capital spending, which the government sees as key to shoring up the economy, Kyodo reported.

Business investment gained 2.7 per cent in the first quarter, owing mainly to increased spending in the retail, electronics and service sectors, compared with a 0.4 per cent rise in the preliminary report.

However, private consumption, accounting for around 60 per cent of GDP, rose only 0.4 per cent, unchanged from the initial data, in a sign that households remained cautious about spending on the back of sluggish wage growth.

Senior economist Koya Miyamae at SMBC Nikko Securities in Tokyo was reported by Kyodo as saying that consumption and exports have turned out to be weak in April, and could weigh on the economic recovery down the road. "The economy could fall into negative growth in April-June," he said.

An average projection by 41 private sector economists, released last week by the Japan Center for Economic Research, showed that GDP growth is expected to slow to an annualised real 1.7 per cent in the three months to the end of June. In nominal terms, before adjustment for price changes, Japan's GDP jumped by an annualised 9.4 per cent in the first quarter - the fastest rate of growth since the second quarter of 1990.