Japan’s economy grew at a much slower rate than previously thought in the third quarter, fresh data showed yesterday, as the country’s fragile recovery from recession was hit by a soaring yen.
The world’s No. 2 economy expanded at an annualized pace of just 1.3 percent in the July to September period, sharply down from an estimate of 4.8 percent, the Cabinet Office said.
It meant the country — which early this year emerged from its worst post-war recession — saw growth of just 0.3 percent in the three months, compared with the initial estimate of 1.2 percent, it said.
PHOTO: REUTERS
The main reason was that capital investment, the amount companies spend on new assets, was revised down to reveal a contraction of 2.8 percent from an original estimate of 1.6 percent growth, the Cabinet Office said.
A key to the fall is the yen’s appreciation against the US dollar, which hit exporters’ income.
Japanese Prime Minister Yukio Hatoyama admitted the difficulty of navigating Asia’s biggest economy out of deep stagnation and stressed the benefits of a new government stimulus package he announced on Tuesday.
“As the Japanese people are already feeling, the economy is not necessarily doing fine,” he told reporters. “I would like to take appropriate economic policies going forward.”
His government announced a stimulus worth up to US$274 billion, with US$80 billion in direct spending, including on green programs, assistance for small business, job security and aid for local communities.
Last week the Bank of Japan said it would pump more than US$100 billion into financial markets through cheap short-term loans.
The lower growth figures on Tuesday were worse than analysts had expected. Private economists had on average predicted the revised data would show annualized growth of 2.7 percent.
Improving overseas markets have helped gradually raise exports and production, which collapsed during the global downturn that from last year slashed demand for Japanese cars, electronics and other goods.
But weak domestic demand, the strong yen and deflation still weigh heavily on Japan’s recovery.
“The domestic economic sentiment has been terrible,” said Masamichi Adachi, senior economist at JP Morgan in Tokyo. “The three reasons for the terrible sentiment are the yen’s rise, deflation and mistrust in the government’s policies.”
The yen hit a 14-year high of around 84 to the dollar last month, which made Japanese firms’ products more expensive and reduced their overseas earnings. The dollar was trading in the ¥88 range in Tokyo yesterday.
Prices have also been falling, and the government last month said Japan is in deflation.
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