Japan revises Q1 growth to annualised 6.7%

THE Japanese economy grew much faster in the first quarter of this year than initially estimated, according to revised official data released yesterday, which showed that gross domestic product (GDP) rose at an annualised rate of 6.7 per cent in the period rather than the 5.9 per cent previously reported.

The strong growth - the fastest in more than two years - was mainly due to a surge in private capital spending which jumped by 7.6 per cent rather than the initially estimated 4.9 per cent. This, analysts said, augured well for continuing growth in the world's third-largest economy

"We were able to achieve an economic growth rate that we haven't heard of recently," Japanese Prime Minister Shinzo Abe told Parliament yesterday after publication of the GDP data by the Ministry of Finance

News of stronger-than-expected private capital spending was of particular welcome for Mr Abe, who has staked his political fortune on reviving the economy and ridding it of deflation.

While the surge in industrial output and consumer spending in the first quarter of this year was forecast in advance of the hike in the national sales tax from April 1, economists had not expected capital investment to rise correspondingly, given fears of a sales slump after the tax hike.

"Companies don't tend to ramp up spending ahead of the sales tax hike, so the increase likely reflects improvements in corporate profits and diminishing slack" in the economy, Mitsumaru Kumagai, chief economist at Daiwa Institute of Research, told Reuters.

Separate data published yesterday showed that consumer confidence rose for the first time in six months in May, suggesting that a generally expected post tax-hike fall-off in personal consumption and industrial output may prove less severe than feared. Service sector sentiment also edged up.

Meanwhile, bank lending rose 2.3 per cent in May from a year earlier, rising for the 31st consecutive month and growing at a faster pace than 2.1 per cent in April, Bank of Japan (BOJ) data showed yesterday.

The latest statistics on the economy suggest that the inevitable fall-off in output and sales that will follow the consumption tax rise may not prove as serious as feared, analysts said.

The quasi-government Japan Center for Economic Research said last week that GDP is estimated to contract 4.2 per cent in the second quarter, on the basis of projections by some 40 private-sector economists.

In comments to Parliament reported by Reuters yesterday, BOJ deputy governor Kikuo Iwata said that he expected exports to turn up as advanced nations recover.

"The Japanese economy will continue growth above its potential rate as a trend as exports turn up and domestic demand remains firm," Mr Iwata said, adding that the economy was on track to meet the BOJ's 2 per cent annual inflation target.

On the negative side, Japan suffered its biggest trade deficit ever in April as imports of fuel and electronics parts outpaced shipments of cars, leading to a smaller-than-expected current account surplus, the Ministry of Finance reported.

The trade deficit stood at 780.4 billion yen (S$9.53 billion) in April, up 10.2 per cent from a year earlier.

The current account came to a surplus of 187.4 billion yen, undershooting a median forecast for 322.5 billion yen as trade shortfalls widened and income gains narrowed.