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    Japan's economy likely up 3.7% in Q1
Daisuke Takato
2004-05-11 06:28

Japan's economy probably grew at an annual 3.7 per cent pace in the first three months of this year, as exports, business spending and consumer spending helped the economy expand for the fifth straight quarter.

Gross domestic product probably rose a seasonally adjusted 0.9 per cent, or an annualized 3.7 per cent, in the January-March quarter from the previous three months, according to a median of 12 forecasts in a Bloomberg News survey. The Cabinet Office will release the report on May 18.

"We can expect the economy to continue to expand this year, and the export-led growth to slowly spread to non-manufacturers," said Azusa Kato, an economist at BNP Paribas (Japan) Ltd in Tokyo.

The first-quarter growth forecast by economists is about double the prediction they made in February, and follows a gain of 6.4 per cent in the fourth quarter, a 13-year high. Record earnings at companies including Sharp Corp, and rising business and consumer sentiment are making Japan's recovery from its third recession since 1991 more sustainable.

The Nikkei 225 Stock Average rose 47 per cent in the year ended March 31, led by exporters including Advantest Corp and Kyocera Corp. Since February, retailers such as Aeon Co and Ito-Yokado Co have joined the rally, as the economic recovery spreads.

Sharp is spending a total of 150 billion yen (US$1.41 billion) in the three years to March 2006 as it increases spending on new factories to make flat-panel screens used in televisions, mobile phones and other electronic goods.

Canon Inc, the world's biggest maker of copiers, last month raised its profit forecast for 2004 by 8 per cent, after announcing that first-quarter net income rose 18 per cent because of higher demand for digital colour copiers and digital cameras.

Japan may have to rely more on retailers and other service providers for the economic recovery to keep pace. The economy is not without risks, says BNP's Kato.

"The underlying assumption is that global economic growth will support" exports and manufacturers, she said. "The possibility of an interest rate hike in the US and China tightening its fiscal position to slow growth are threats" because the two countries are Japan's biggest export markets.

The US economy, the world's largest, expanded at a 4.2 per cent annual rate in the first quarter, led by business investment, and consumer spending, which was buoyed by tax cuts and the Federal Reserve's lowest interest rate in four decades.

Chinese Premier Wen Jiabao in March said that China's growth will probably slow to about 7 per cent this year from 9.1 per cent in 2003 as the government curbs lending and investment to prevent the economy from overheating.

Domestic demand in Japan also faces a challenge from falling wages, which sank for a ninth straight month in March. Japanese salaries fell 2.7 per cent, the biggest drop since December 2002, which may stifle the consumer spending that accounts for more than half of the economy.

"Unless wages rise, we can't expect the gains in consumer spending to last," said Osamu Tanaka, an economist at Morgan Stanley Japan Ltd.

Japan's six years of falling consumer prices are also sapping growth. Nominal GDP, which doesn't adjust for price changes, probably rose 0.3 per cent in the first quarter from the fourth quarter, which is about 1.2 per cent annualized, the survey showed.

(China Daily 05/11/2004 page12)