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Saturday, Feb. 18, 2006

Economy grew 5.5% in quarter


By YUMI WIJERS-HASEGAWA and MAYUMI NEGISHI
Staff writers

The economy grew at a robust annualized rate of 5.5 percent in real terms in the October-December period for the fourth-straight quarter of growth, the Cabinet Office said Friday.

News photo
A Japan Airlines jet sits at a gate Friday at Central Japan International Airport, which marked its first anniversary on the day.

The economy grew a real 1.4 percent in the quarter as companies and the public kept up their 2005 spending streak.

In calendar 2005, gross domestic product grew a real 2.8 percent from the previous year, for the sixth straight year of growth.

But according to the GDP deflator, not everything is rosy. The deflator fell to minus 1.6 percent year-on-year, reflecting price falls in the economy.

The deflator has been in negative territory since calendar 1998. Some politicians focus on this part of the GDP data to argue the Bank of Japan should not end its ultra-easy monetary policy just yet.

Economists disagreed.

"We can expect a good 3 percent growth in calendar 2006," said Masaaki Kanno, managing director at JP Morgan Securities Asia.

"Wages rose 2.5 percent from the previous year, helped by large bonuses at some companies," he noted.

Higher wages usually translate into stronger spending.

The quarter results "are enough to give the BOJ more confidence to discontinue its quantitative easing policy, and we believe that will come in April," Kanno said.

Friday's GDP figures paint the picture of a healthy economy, bolstered by strong domestic demand.

If the October-December growth is sustained for four quarters, according to the data, the economy would lodge a real 5.5 percent growth.

Growth has picked up steam, as households spent 0.8 percent more in real terms than they did in the prior quarter, buying more flat-screen TVs ahead of the Winter Olympics as well as iPods.

People also spent more on stock transaction fees, and they bought more warm drinks and kerosene due to the cold weather.

Businesses spent 1.7 percent more in the October-December period than in the previous quarter for the seventh-straight quarter of growth, spending on chemical and electrical plants.

Personal spending was strong, said Hideo Kumano, senior economist at Dai-ichi Life Research Institute Inc.

Besides pay hikes, higher stock prices also helped lift spending, Kumano said, as people without regular incomes, including elderly shareholders, bought more digital equipment.

The minus 1.6 percent deflator does not need to be taken too seriously, he said, adding that it is a temporary phenomenon due to the price rise in crude oil and vegetable imports in the cold. Imports push the deflator down.

"I expect salaried workers' incomes to rise after April," Kanno said. "This will push the deflator up more."

Both domestic and overseas demand helped the economy grow. Domestic demand contributed 0.8 percentage point to the real 1.4 percent quarter-on-quarter GDP gain. Overseas demand for cars and other products boosted growth by 0.6 point.

Exports outweighed imports in the quarter. The pace of imports slowed for the first time since the April-June 2003 period, as fewer firms hired foreign consultants and market research companies.

Demand for oil, natural gas and electrical appliances also fell. When imports fall, it boosts the GDP.

Government officials, Liberal Democratic Party members and BOJ executives are cautious about ending the ultraeasy monetary policy, but Kazuo Mizuno, chief economist at Mitsubishi Securities Co., said it was time for quantitative easing to end.

"If deflation is as the IMF (International Monetary Fund) defines it -- two straight years of consumer price falls -- then we could say that we are getting out of deflation."



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