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Updated Friday, March 12, 2010 11:01 am TWN, Reuters

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Japan growth down, adds to pressure on Bank of Japan

TOKYO -- Japan's economy grew less than initially estimated in the fourth quarter and a broad gauge of price trends hit a record negative reading, adding to pressure on the Bank of Japan to ease monetary policy further next week.

While solid exports to Asia will continue to support growth, the economy may slow on cuts in public works and as the impact of government subsidies on energy-efficient goods starts to wane, analysts say.

The contribution of domestic demand was also revised down from preliminary data that showed it was the biggest driver of growth. The change was partly due to a fall in inventories, which could be a positive as it could point to higher factory output in the future.

Some economists say domestic demand and overall growth would be stronger if it were not for the impact of deflation and that bolsters calls for the central bank to do more.

“The revised GDP data doesn't change the prospects of the economy slowing down towards the summer, chiefly because the boost from government stimulus on private consumption is likely to peter out,” said Seiji Shiraishi, chief economist at HSBC Securities Japan.

“Although the government is reportedly set to upgrade its economic assessment, the Bank of Japan is entirely focused on price moves and probably on government pressure, so it is expected to take further easing steps.”

The economy grew 0.9 percent in the October-December quarter, slower than the preliminary estimate of 1.1 percent and a median market forecast of 1.0 percent, as capital spending rose less than initially reported and with private inventories subtracted from growth, data by the Cabinet Office showed on Thursday.

Japan's expansion in the fourth quarter was faster than the 0.1 percent growth in the European Union but slower than a 1.4 percent expansion in the United States in the same period.

Capital expenditure rose 0.9 percent in the quarter, less than the preliminary 1.0 percent rise as manufacturers saddled with excess capacity and service sector firms worried about domestic demand are slow to increase spending.

Private inventories shaved 0.1 percentage point off GDP, compared with a preliminary reading of a 0.1 percentage point contribution, as inventories of cars and steel products were less than initially estimated.

Domestic demand contributed 0.4 percentage point to growth, down from an initial estimate of 0.6 point. The contribution from external demand was unchanged at 0.5 percentage point.

On an annualized basis, Japan's economy expanded 3.8 percent, against the initial reading of 4.6 percent and a median market forecast of 4.1 percent.

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Comments

March 13, 2010 samuraitaro@

Deflation has been persistent in Japan for two decades due to very low unemployment rate in Japan for the very low GDP growth rate. If GDP growth rate decreases, unemployment rate should be increased since average annual household income can be maintained in that way. But Japan did not do that. Instead Japan maintained low unemployment rate compared with other developed countries. Therefore, an annual Japanese household income has been decreasing for two decades. The solution of the Japanese persistent deflation is to give much more flexibility in the labor market.