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Updated Tuesday, November 17, 2009 10:56 am TWN, By Jason Clenfield and Tatsuo Ito, Bloomberg

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Japan GDP accelerates, easing slump risk

Kan said after the report that while capital spending is showing signs of bottoming, downside risks to the economy must be watched. He also predicted, in a news conference in Tokyo, that the Bank of Japan won't alter its accommodative stance. The BOJ last month kept its benchmark interest rate near zero.

One third of Japan's factories still sit idle, forcing firms to delay hiring and investment that would help to sustain the revival.

Consumer spending, which makes up about 60 percent of the economy, climbed 0.7 percent, fueled by government incentives to purchase energy-efficient cars and appliances.

Monday's GDP figures were leaked by Trade Minister Masayuki Naoshima at a meeting of oil executives almost an hour before their release. Naoshima later apologized, telling Bloomberg News he didn't know when the data were due to be published.

Hatoyama's Democratic Party of Japan inherited policies that helped prop up spending at home at the cost of increasing a debt that's approaching double the size of GDP. The DPJ itself pledges to boost spending and cut taxes, even as tax revenue declines, raising concern that Japan's fiscal position will deteriorate further.

The price of hedging against losses on US$10 million of the country's bonds with credit-default swaps more than doubled this month from August to as much as US$76,160 a year. Finance Minister Hirohisa Fujii said last week that “maintaining the trust of investors in the government bond market is our priority.”

“The problem is that you can't expand fiscal spending forever because we've got this fiscal deficit to worry about,” said Shirakawa at Credit Suisse.

Stimulus from abroad also spurred Japan's growth last quarter. Exports increased 6.4 percent from the previous three months, the Cabinet Office said.

China's 4 trillion yuan (US$586 billion) in government spending on building projects and household subsidies helped Hitachi Construction Machinery Co. drain stockpiles and return to profit last quarter. Honda Motor Co. last month tripled its full-year profit forecast because of Chinese sales.

Japan's expansion since March doesn't make up the ground lost during the previous four quarters of contraction, when the economy shrank to its 2003 size. Industrial production is still about 20 percent below last year's level and the slump in domestic demand has depressed consumer prices, which have dropped for seven months.

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