Instant View: Japan Q4 GDP revised up to -0.2 percent quarter/quarter

TOKYO Wed Mar 7, 2012 11:00pm EST

1 of 2. A man walks through a street in Tokyo's Shinjuku district March 8, 2012. Japan's economy shrank less than initially estimated in the fourth quarter as companies ramped up capital expenditure, but the current account swung to a record deficit in January as a shift away from nuclear power pushes up fossil fuel imports.

Credit: Reuters/Yuriko Nakao

TOKYO (Reuters) - Japan's economy shrank less than initially estimated in the fourth quarter as companies ramped up capital expenditure in response to an increase in demand spurred by reconstruction of the country's earthquake-battered northeast coast.

The current account balance swung to a record deficit in January as the Chinese Lunar New Year holidays weighed on exports, but economists see the result as a one-off and expect the current account to remain in surplus for the next few years.

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KEY POINTS:

-- Gross domestic product (GDP) fell a revised 0.2 percent in October-December from the previous quarter, exactly in line with economists' median forecast and revised from the government's preliminary estimate of a 0.6 percent contraction, according to Cabinet Office data on Thursday.

-- On an annualized basis, the economy shrank 0.7 percent, matching a 0.7 percent annualized decline expected by economists and revised from a preliminary 2.3 percent annualized contraction. JPGDR1=ECI

-- Capital expenditure rose a revised 4.8 percent, compared with a 5.0 percent rise expected by economists and a preliminary reading of a 1.9 percent rise.

-- Japan's current account balance swung to a deficit of 437.3 billion yen ($5.41 billion) in January, more than the median estimate for a record 317.8 billion yen deficit as exports sank at the start of the year. JPCURA=ECI

COMMENTARY:

NORIO MIYAGAWA, SENIOR ECONOMIST, MIZUHO SECURITIES RESEARCH & CONSULTING, TOKYO

"The upward revision in capital expenditure explains the revision to GDP. From here on, exports won't be too strong because overseas economies are slowing.

"Factory output will rebound, however, as the impact from floods in Thailand is receding and domestic subsidies for energy-efficient goods will help the economy. Reconstruction-related demand will also play a part.

"The trade balance is likely to stay in deficit this year as we import more energy to offset the declining use of nuclear power.

"The current account should swing back to a surplus as we still have a surplus in the income account. Japan should be able to finance its debt for the time being. But if it is a question of what happens five to 10 years from now, we cannot be so certain."

TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE, TOKYO

"Capital expenditure growth is accelerating, but overall, the revised GDP figures were within expectations.

"We cannot count on any strong growth in exports, but as a whole, we'll probably see positive economic growth in the first quarter of this year. Public expenditure growth will also support the economy in April-June, so the economy will likely expand solidly in the new business year from April, once exports bottom out.

"The Bank of Japan acted boldly last month, so it will probably stand pat next week."

HIROSHI MIYAZAKI, CHIEF ECONOMIST, SHINKIN ASSET MANAGEMENT CO, TOKYO

"The economy will resume growing in the first quarter as exports increase and as rebuilding proceeds after the earthquake. The economic recovery will continue into the new fiscal year starting from April.

"There are a lot of risk factors, such as a strong yen and Europe's debt crisis, but these risks have been receding.

"A weakening yen will help corporate earnings. Consumption is likely to improve. Companies will also think twice about delaying domestic capital expenditure."

BACKGROUND:

-- The Bank of Japan is likely to leave monetary policy unchanged at its next meeting on March 12-13. The BOJ surprised markets on February 14 by easing monetary policy with a 10 trillion yen ($123.86 billion) increase in government bond purchases and set an inflation goal of 1 percent, signaling a more aggressive stance to end deflation.

-- The yen has since slipped and is now trading near a nine-month low versus the dollar, going some way to easing concerns that a strong currency could weigh on exports and delay Japan's economic recovery.

-- Larger-than-expected gains in industrial production and bullish output forecasts for the first quarter have raised hopes that Japan's economy will gather momentum this year.

($1 = 80.7350 Japanese yen)

(Reporting by Rie Ishiguro, Leika Kihara and Stanley White; Editing by Edmund Klamann)

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