< Back to News

Japan Economy Grows 1.3%, Less Than Initial Estimate of 4.8%

Dec. 9 (Bloomberg) — Japan’s economy expanded less than a third of the pace initially reported in the three months to September as companies slashed spending.

Gross domestic product rose an annualized 1.3 percent, slower than the 4.8 percent reported last month, the Cabinet Office said today in Tokyo. The revision, which was deeper than the predictions of all but one of the 17 economists surveyed by Bloomberg News, also showed that price declines accelerated.

Stocks fell after the report underscored concern about the sustainability of a recovery that is under threat from deflation and a rising yen. Prime Minister Yukio Hatoyama unveiled a 7.2 trillion yen ($81 billion) stimulus package yesterday to ensure the economy avoids another recession next year.

“These numbers were weak,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “The stimulus will have a positive effect on the economy. But it’s not, in any way, enough to offset how steeply third-quarter GDP was revised.”

In nominal terms the economy shrank 0.9 percent last quarter, more than the 0.1 percent contraction in the preliminary report. The GDP deflator, the broadest indicator of price declines, slid 0.5 percent, revised from a 0.2 percent increase. The gauge has only risen twice in the past decade.

“This is a reminder of the deflation gap,” said Shuichi Obata, senior economist at Nomura Securities Co. in Tokyo, the only company to forecast a decline in the deflator. “It will be important to see how much Japan can recover while deflation continues.”

Nikkei Slides

The Nikkei 225 Stock Average slid 1.3 percent, led by Honda Motor Co. and Mizuho Financial Group Inc. The yen traded at 88.45 per dollar at 12:56 p.m. in Tokyo from 88.40 before the report. The currency has weakened since climbing to a 14-year high of 84.83 per dollar on Nov. 27. The median estimate of economists surveyed by Bloomberg News was for an annualized 2.8 percent expansion.

Investment by companies drove the downward revision in last quarter’s growth. Capital spending fell 2.8 percent in the three months through September from the previous quarter. That compares with a 1.6 percent increase reported last month.

“The recovery in capital investment will be dull,” said Yasuhiro Onakado, chief economist in Tokyo at Daiwa SB Investments Ltd., whose 1 percent prediction for growth was the most accurate of analysts surveyed. “Capacity utilization levels are still low, meaning that companies are saddled with idle assets and have no room for new investment.”

Record Cuts

The economy expanded 0.3 percent in the third quarter from the previous three months, the Cabinet Office said, slower than the 1.2 percent first reported. The cuts in both quarterly and annualized growth were the biggest since the survey was introduced in 2002, the government said, voicing concern about the size of the revision.

While the initial report gave the impression export growth is spreading to the domestic economy, “we’ll need to reexamine that,” Keisuke Tsumura, a parliamentary secretary at the Cabinet Office told reporters.

Consumer spending, which makes up about 60 percent of the economy, climbed 0.9 percent, compared with a 0.7 percent gain initially reported. Exports increased 6.5 percent from the previous quarter, compared with the 6.4 percent first published.

Some exporters are scaling back their spending plans as the yen’s rise to a 14-year high threatens their profits and market share.

Toyota Cuts Investment

Toyota Motor Corp., Japan’s biggest automaker, aims to cut capital investment by 70 billion yen from its initial plans for the year ending March, the most among major companies, a Nikkei Inc. survey showed on Nov. 30.

Sony Corp., forecasting its first consecutive annual loss since its listing in 1958, said last month that it will eliminate 250 jobs at its information devices unit to reduce costs. The company will close down a factory in Miyagi Prefecture making magnetic heads and transfer some of its touch- panel production to China.

Falling prices have been squeezing profit at home, prompting the government to declare last month that the country is back in deflation and push the Bank of Japan to do more to spur the economy. The central bank released a 10 trillion yen credit program last week, a move that Deputy Prime Minister Naoto Kan said yesterday had a “considerable impact” on weakening the yen.

Yesterday’s stimulus includes employment subsidies, loan guarantees and incentives to buy energy-efficient products. Japan has compiled four spending packages since September 2008 totaling more than 29 trillion yen. Some economists say these measures won’t be enough to support growth.

“Consumer spending will probably start to decelerate in coming quarters,” said Seiji Adachi, a senior economist at Deutsche Securities in Tokyo. “People won’t keep purchasing durable goods just because the government has extended incentives.”