Japan GDP Jumps For Masks Deflation Crisis

Feb 15, 2010 Posted by brindils on Feb 15, 2010 in Business | 0 comments

Japan GDP Jumps For Masks Deflation Crisis

Japan’s economy grew quicker than expected in the fourth quarter having a stimulus-fueled rebound in domestic demand plus a corporate investment revival masking rising deflationary pressure and the danger of a slowdown in 2010.

The government, which has been pressing the Bank of Japan to broaden its policy response to deflation, drew tiny comfort from the 1.1 % expansion within the world’s second-largest economic climate in comparison using the previous quarter.

Markets focused on the record Three % annual fall in the GDP deflator as a sign that the large gap between supply and demand was pushing Japan deeper into deflation. Japanese government bond futures hit a two-week higher right after the data.

Domestic demand was the economy’s brightest spot in October-December, adding 0.6 percentage point to GDP development, the very first positive contribution in seven quarters.

That momentum was most likely to fade, economists said, citing the dwindling effect of stimulus announced by the previous federal government and uncertainty over how quickly the new administration plans would boost usage.

The gloomy outlook leaves Japan’s policy-makers with the vexing question of how to accomplish higher development when the large public debt limits the government’s capability to pump-prime the economy and when the central bank has exhausted its conventional policy choices.

“While such deflationary tendencies persist, the need for a plan response centered on the BOJ is improving, not diminishing,” said Tetsufumi Yamakawa, chief economist at Goldman Sachs Japan.

BOJ Policy

The BOJ reviews plan at a two-day meeting that ends on Thursday and most economists expect no alter in monetary policy. The central bank pumped a lot more cash into the banking system at an emergency meeting in December and has signaled it’s ready to ease again if financial markets destabilize.

Government officials have been pushing the BOJ to do a lot more to fight deflation, even though they have avoided the fierce criticism that preceded the BOJ’s emergency meeting in December when one minister said the central bank had fallen “asleep on the wheel.”

Finance Minister Naoto Kan stated on Monday the federal government could not be optimistic about the economic climate even though the risk of an additional recession had receded.

“I think the government may appear at the GDP figures as reasonably great news but will maintain its policy support and remain vocal on monetary policy,” stated Adrian Foster, head of financial markets investigation at Rabobank International in Hong Kong.

One danger stems from a policy shift introduced through the Democratic Party-led government that was voted in last year.

The new government is shifting cash away from the public works projects favored by its predecessor and is supporting household spending instead, a policy that has a less direct effect inside a country having a strong propensity to save, and which could briefly slow economic growth.

“Public works spending has fallen for two straight quarters and also the outlook for exclusive usage is uncertain until the effect of government payouts to households with children begins to show,” stated Takeshi Minami, chief economist at Norinchukin Investigation Institute in Tokyo.

Domestic demand was a key driver of development last quarter. Exclusive usage gained 0.7 percent, compared with a 0.6 percent rise the past quarter and a median forecast for a obtain of 0.Three %.

Corporate investment rose 1.0 %, the very first gain since Q1 of 2008, but less than a forecast for a 1.Five % gain.

Copier and camera maker Canon Inc (7751.T) plans to boost its capital expenditures by 2 percent to 220 billion yen ($2.4 billion) for 2010 right after slashing spending by 40 % in 2009.

“As the world economic climate recovers and central banks globally start tightening monetary policy, the BOJ may not move along with them, producing the yen weaken naturally,” said Takuji Okubo, chief economist at Societe Generale Securities in Tokyo.

The fourth quarter growth was the fastest since a 1.Three percent expansion in April-June 2009 and translated into an annualized rise of 4.6 %, beating a Three.7 % forecast.

The U.S. economy grew at an annualized clip of Five.7 % within the same quarter, whilst the euro zone economic climate expanded 0.1 percent around the quarter.