TOKYO, 11 September 2003 — Japanese economic growth quickened at its fastest clip in two-and-a-half-years in the April-June quarter as companies stepped up spending on machinery to feed strong demand for exports, revised data showed yesterday. The figures supported the view that Japan is on the mend after its worst postwar downturn, although many economists still harbored doubts about whether the growth would stay as strong, particularly after a cool summer that has dampened demand.
The government said real gross domestic product (GDP) expanded 1.0 percent in April-June from the previous quarter, up from an initial reading of 0.6 percent. On an annualized basis, Japan’s economy expanded 3.9 percent, exceeding growth of 3.1 percent in the United States, the biggest single destination for Japanese exports.
“There’s no doubt the economy is recovering, but the figures are probably overstating it,” said Toshikimi Kaneki, an economist at Sumitomo Trust and Banking.
Merrill Lynch economist Takuji Aida said the economy was not likely to enter a phase of strong and sustained growth until the end of the fiscal year starting next April 1. “Japan’s economy is still laden with structural weaknesses. I don’t think the 3.9 percent annualized growth rate is sustainable,” Aida said.
The GDP figures, which are adjusted for price changes, showed spending on plant and machinery rose 4.7 percent from the previous quarter, also the biggest rise in 10 quarters. The government had initially reported a 1.3 percent increase.
As evidence of an improving climate for business, Casio Computer Co. Ltd. said yesterday that strong sales of digital cameras and watches would help it easily beat its profit forecast of six billion yen ($51 million) for the first half.
The GDP figures were within expectations and market reaction was generally restrained, but there was speculation that Japanese authorities had intervened to hold back the yen from rising too much against the dollar.
The strong yen reflects optimism over Japan’s economy and stock market, but officials worry it could undermine the recovery by making Japanese goods more expensive on international markets.
Stocks closed slightly lower but bank shares rose strongly on hopes the improved economic outlook would help them reduce their bad loans as well as encourage new business. The Nikkei average, which closed at a 14-month high on Tuesday on the improved outlook, edged down 0.6 percent.
Economists said the data showed the economy was growing at such a brisk pace that the government’s 0.6 percent growth forecast for the fiscal year to next March now looked modest.
The stronger economic outlook gives reformist Prime Minister Junichiro Koizumi an advantage as he goes into a leadership election for his Liberal Democratic Party on Sept. 20. Failure to win would likely end his term as premier. Despite the budding optimism, however, analysts said the economy was still vulnerable to two big problems - deflation and massive bad loans that are weighing on the banking system.
Many also saw slower growth ahead, saying cool weather since July had discouraged consumers from shopping and eating out. “We may see a dip in GDP for July-September as personal consumption may be weak due to the cold summer and as special factors that pushed up demand fade,” said Shuji Shirota, economist at Dresdner Kleinwort Wasserstein.
