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Wed, Nov 15, 2006 - Page 10 News List

Robust corporate investment fueling Japan's growth

AP , TOKYO

Japan's economy grew at a stronger-than-expected 2 percent annual pace in the July-September quarter, the government said yesterday, thanks to surprisingly robust corporate investment in factories and equipment.

Gross domestic product grew for the seventh straight quarter, expanding 0.5 percent from the previous quarter, according to the Cabinet Office. Economists had forecast a 0.3 percent gain, or 1.1 percent at an annual pace.

After a decade-long slump, Japan's economy has quietly mustered one of its longest periods of overall growth since World War II. Using a variety of economic data, including GDP, the government says the economy has expanded for 57 months now. That matches a similar period of growth in the 1960s, although the rate is far more moderate than that era of rapid growth.

"Japan is like a jet that's flying steadily, although at a lower altitude than in the past," said Masaaki Kanno, chief Japan economist at J.P. Morgan Securities in Tokyo.

Banks have written off many of their bad debts from the 1990s, and corporate balance sheets have been improving, Kanno said.

"Japan's economy isn't about to crash that easily. There are no major risks," he said.

Stocks jumped on the news, with the benchmark Nikkei 225 index up 1.34 percent in morning trading.

Although private consumption, which accounts for more than half of Japan's economy, shrank 0.7 percent on quarter in the three months ended Sept. 30, capital investment grew a stunning 2.9 percent, according to Cabinet Office data.

In previous decades, Japan relied mostly on exports, especially to the United States, to keep growth going. In recent years, consumer and company spending is bolstering growth.

The Cabinet Office said exports grew 2.7 percent in July to September, mostly on booming electronic and telecommunication product exports, offsetting weak private consumption.

The latest data are so solid, growth could even stay flat during the second fiscal half to achieve the government target of 2.1 percent growth for the fiscal year ending March next year, said Masayuki Goto of the Cabinet Office.

Still, the drop in private consumption was troubling, said Kunji Okue, analyst at Dresdner Kleinwort Japan.

"If exports collapse, then the whole thing will collapse," he said.

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