POLL - Japan economy to show moderate growth despite strong yen

TOKYO (Reuters) - Japan’s economy is set to stay on a moderate recovery trend and the chance of a double-dip recession is fairly slim despite recent sharp gains in the yen that are likely to hurt exports, a monthly Reuters poll shows.

A Japanese national flag flies in front of cranes at an industrial port in Tokyo August 25, 2010. REUTERS/Kim Kyung-Hoon/Files

Growth, however, is expected to slow in the final quarter of this year and into January-March next year as the effects of government stimulus, such as tax benefits for energy-efficient cars, fade.

The poll forecasts Japan’s economy will grow 0.5 percent in the third quarter from the previous quarter, and then increase 0.2 percent in the fourth quarter.

In last month’s poll, economists forecast a 0.4 percent expansion for both the third and fourth quarters of this year.

Japan will be mired in deflation at least until the middle of next year, forcing the central bank to keep interest rates on hold at 0.1 percent during that period, the poll of more than 50 economists showed.

“The impact of the strong yen is a bit worrying. It’s a risk factor but as long as the dollar stays above 80 yen, it won’t cause the recovery to derail,” said Kyohei Morita, chief economist at Barclays Capital.

The yen has appreciated further since the August poll was issued and Japanese policymakers have tried to talk it down, threatening to intervene. It surged to a 15-year high against the dollar earlier on Wednesday.

Of those polled, economists gave a 30 percent chance that Japan would enter a double-dip recession, in line with the previous month’s poll.

“An expected increase in public works projects in China will likely support Japan’s economy. Capital spending and job conditions in Japan are therefore expected to improve next year,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

“We don’t deny that a double-dip recession is possible but it is not our main scenario.”

Japan will release revised second-quarter GDP data on Friday and the growth figure is expected to be revised up to 0.4 percent on the quarter, or an annual clip of 1.5 percent after improvements in capital spending.

That compares with initial readings of a meagre 0.1 percent quarter-on-quarter gain and a 0.4 percent expansion.

The monthly poll also showed the core consumer price index (CPI) is expected to fall 1.0 percent in the third quarter from a year earlier, before declining 0.7 percent in the fourth quarter, broadly in line with the previous month’s survey.