Japan’s economic growth accelerated in the third quarter as expiring government incentives gave consumption a last-minute boost before a long-anticipated slowdown that analysts say is already under way.
Many expect the economy to stall or even contract slightly over the next two quarters as the strong yen’s damage to exports becomes more evident and factory output slumps after incentives for buyers of low-emission cars expired in September.
While few expect Japan to slip back into recession, policymakers remain alert to risks to the fragile economy.
The yen was trading below its 15-year peak yesterday, but its renewed climb toward record highs could prompt the Bank of Japan to ease monetary policy further, by spending more on government bonds and other assets to avoid a prolonged downturn.
Japan’s GDP grew 0.9 percent from July to September from the previous quarter, accelerating from a 0.4 percent rise in the second quarter and beating a median forecast for a 0.6 percent rise, official data showed yesterday.
The fourth straight quarter of growth translates into an annualized rise of 3.9 percent, nearly double the rate of US growth in the same period.
The government saw little to cheer about, with Japanese Economics Minister Banri Kaieda warning that slowing overseas growth and the strong yen could threaten the outlook.
Japan emerged from its worst recession since World War II in the second quarter of last year, but growth has been spotty due to a lackluster labor market and slow gains in corporate spending.
A Reuters poll showed the economy is expected to shrink 0.1 percent in the fourth quarter as the effects of government stimulus fade, before resuming a -moderate recovery.
Underscoring the pain inflicted by the strong yen and slowing exports, net external demand — or exports minus imports — made no contribution to third-quarter GDP after adding 0.3 percentage point in the second quarter.
Private consumption, which accounts for about 60 percent of the economy, rose 1.1 percent, the biggest increase in more than a year, due to the one-off boost from expiring car incentives and a tobacco tax hike last month that spurred a last-minute buying binge.
Automakers have already been slashing output in anticipation of a slump in demand after the stimulus expired. Capacity utilization fell 1.1 percent in September from a month earlier to log the fourth straight month of declines, data showed yesterday.
The government was hoping to pass an extra ￥5 trillion (US$61 billion) budget through the Diet yesterday, but analysts doubt the modest package will give much of a boost to the US$5 trillion economy.
That leaves the onus on the Bank of Japan, although it is under less pressure to ease right now with the yen having weakened somewhat after its climb to near record-high levels last month.
“The yen has fallen a bit but you can’t disregard the risks of further yen rises due to US monetary easing,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
The central bank last eased its policy early last month by pledging to keep rates effectively pegged at zero until the end of deflation was in sight and announcing a plan to spend ￥5 trillion on assets ranging from government bonds to corporate debt.
The central bank has said it stands ready to boost the size of the asset buying fund, if economic conditions deteriorate.
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