World Business

Japanese Q1 growth fails to meet forecast

By Keiko Ujikane (China Daily)
Updated: 2010-05-21 10:36

A worker checks the scale of a part at a plant in Tokyo. In the first quarter, Japanese companies reaped the benefits of the trade recovery as they forecast higher profits and spending. [AKIO KON / BLOOMBERG]

TOKYO - Japan's economy grew less than forecast in the first quarter as an export-led recovery failed to stoke consumer spending, putting pressure on the central bank to do more to end deflation as it begins a two-day meeting.

Gross domestic product rose an annualized 4.9 percent, less than the 5.5 percent median forecast in a Bloomberg survey of 21 economists, a Cabinet Office report showed in Tokyo. Export gains saw nominal GDP, which is unadjusted for price changes, increase 1.2 percent on a quarterly basis, the most in a decade.

Stocks fell and Finance Minister Naoto Kan said he expects the Bank of Japan, which is planning measures to encourage banks to lend more, to support an economy that's not yet in a self-sustained recovery. The comeback in world trade, spurred by China's demand, is helping countries across Asia, with Singapore reporting a jump in GDP.

"As long as demand from emerging economies remains strong, Japan's economy will stay on a recovery track," said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co in Tokyo. The direction of overseas economies poses "a major risk factor," he said after Europe's debt crisis has deepened concern about the durability of global growth.

Japan's benchmark Nikkei 225 Stock Average dropped 1.5 percent to 10,030.31 at the close in Tokyo, bringing its slide in the past month to 8 percent. Against the euro, the yen strengthened 0.8 percent to 112.90. Its 11 percent climb versus the European currency in the past month threatens to make its exports to the region more costly.

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In the first quarter, companies from Nissan Motor Co to Tokyo Electron Ltd reaped the benefits of the trade recovery as they forecast higher profits and spending. The rebound also did start feeding into wages and the labor market. Earnings rose for the first time in 22 months in March and the ratio of job openings to applicants advanced for a third month.

Even with higher earnings, consumer spending contributed only 17 percent to the quarterly growth rate. Household outlays rose 0.3 percent in the first quarter, slowing from the previous period's 0.7 percent gain, the report showed.

"The data raises concern about the outlook for consumption" as fiscal stimulus efforts wear off, said Muto at Sumitomo Mitsui. "The improvement in wages is still lagging behind and failing to take over the role of locomotive."

Business spending gained 1 percent, less than the fourth quarter's 1.3 percent. Housing investment climbed 0.3 percent, the first increase in five quarters.

Bloomberg News