Japanese economy slows unexpectedly

Tokyo, Japan (News Today) - The strength of Japan's economic recovery came under question on Monday as second-quarter growth figures came in sharply below economists' expectations.

Growth in the country's gross domestic product slowed to an annualized, seasonally adjusted pace of 0.4 per cent in the three months ended June 30. That was far below the revised 4.4 per cent pace posted in the first quarter and economists' predictions of 2.3 per cent for the latest period.

The figures also appear meager against those posted for the quarter by the world's other giant economies. The US reported annualized growth of 2.4 per cent while Germany generated a robust 9.1 per cent, its fastest pace since reunification, on the back of surging exports amid a weaker euro. China may have overtaken Japan to become the world's second largest economy after posting year-on-year growth of 10.3 per cent in the quarter. Beijing published revised data on Monday raising its GDP for the first quarter.

The sharp deceleration of the Japanese economy was due to slower net export growth and weaker personal and residential consumption. Private inventories were also a drag, though this could mean that companies are rebuilding stockpiles after having wound them down in the second quarter.

With Japan reliant on trade for growth, slower exports will add to concerns that the global recovery is weakening at a time when the effects of domestic fiscal stimulus are waning. Economists are likely to trim their Japanese GDP growth estimates for the year.

Slower export growth is a challenge for Japanese companies at a time when the yen is trading close to a 15-year high against the dollar as risk averse investors pile into the currency. Although authorities have stepped up verbal intervention, analysts are skeptical that direct intervention from the Ministry of Finance is likely.

Monday's GDP figures could add to pressure on policymakers to find other ways to deal with slowing growth and the impact of the stronger yen on the recovery.

Last week the central bank kept its economic assessment unchanged and did not announce any further easing measures.

"The appreciation of the yen [is one of the biggest risks] which could damp yen-denominated profits of exports, which then may have negative repercussions on domestic capital spending," said Kyohei Morita, Japan economist at Barclays Capital.

Naoki Iizuka, an economist at Mizuho, predicted that if the yen rose to about Y80 and stayed there, companies would focus their capital spending overseas.

On a price-adjusted basis, effective exchange rates are slightly below the average of the past 30 years, suggesting there is still room for the currency to rise further without direct government intervention.

Source : CNN

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