Japan lowers Q1 growth estimate

Japan cut its first-quarter economic growth estimate after sluggish overseas demand prompted manufacturers to keep inventories in check. Bonds fell as the report showed deflation deepened less than initially calculated.

The world's second-biggest economy grew at an annual 4.9 percent pace, compared with a May 17 estimate of a 5.3 percent expansion, the Cabinet Office said in a report released in Tokyo yesterday. The GDP deflator, a broad measure of price changes, fell 1 percent from the same quarter a year earlier, less than the 1.2 percent drop estimated previously.

Companies including Olympus Corp, the world's fourth-largest seller of digital cameras, are curbing growth in inventories after overseas sales failed to meet expectations.

The government increased its estimate for corporate investment and stuck with figures showing faster consumer spending, highlighting the economy's dependence on local demand.

Exports the key

"Although we can see domestic demand is firming up, we can't expect strong growth unless exports revive momentum," said Taro Saito, a senior economist at NLI Research Institute in Tokyo, who correctly forecast the revision to first-quarter growth.

"Capital investment was good in the first quarter, but it will slow," Saito sai.

"I am encouraged by the GDP deflator, and the slightly slower growth numbers do not discourage me at all," said Kirby Daley, a strategist at Societe Generale Securities' Fimat unit in Tokyo.

Growth was slower than the median forecast of 20 economists surveyed by Bloomberg News for 5.6 percent growth. The survey showed that economists weren't expecting a revision to the deflator, which hasn't risen in seven years.

GDP figure revised

Gross domestic product, adjusted for seasonal factors and price changes, rose a revised 1.2 percent in the first quarter from the fourth, less than the 1.3 percent gain initially reported. In nominal terms, which don't take into account price changes, the economy grew 0.6 percent in the first quarter, the same as the government previously estimated.

Capital expenditure increased a seasonally adjusted 2.4 percent from the fourth quarter, more than an earlier 2 percent estimate, and consumer spending increased 1.2 percent, yesterday's report said.

Private inventories added 0.3 percentage point to growth in the first quarter, the report said, compared with an initial estimate of a 0.4 percent point contribution.

Exports fell a revised 0.4 percent in the first quarter, a sharper drop than the 0.2 percent decline initially reported. Net exports, or the difference between exports and imports, subtracted 0.1 percentage point from growth, as previously estimated.

A Ministry of Finance report released on June 6 showed that companies increased inventories by less in the first quarter than they did a year earlier. Inventories increased ?244 billion (US$2.2 billion) after climbing ?2.6 trillion in the first three months of last year.