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Saturday, Sept. 12, 2009

Recovery slower than expected

Staff writer

The economy grew less than initially reported in the second quarter due to a greater-than-anticipated fall in private inventory and capital investment, revised data released Friday by the government showed.

Gross domestic product rose at a 2.3 percent annualized rate in the April-June period, lower than the Cabinet Office's preliminary reading of 3.7 percent growth.

The second quarter saw Japan's first growth following four straight drops through the January-March period. However, the revised data indicated a less-than-robust recovery.

Despite the fall in capital spending, however, some analysts welcomed the revised figure as positive news for the economy since it showed a decreased level of inventory, helped partly by the government's fiscal stimulus.

"Since most of its downward revision was due to inventory, this is a good downward revision," said Takuji Aida, economist at UBS Securities Japan.

Private inventory contributed to the change in GDP by minus 0.8 percent in the quarter, compared with a preliminary figure of minus 0.5 percent. The latest negative reading was the largest since a minus 1.0 percent logged in the January-March period of 1999.

"Inventories are falling further, which means the hurdle has been lowered (for the economy) to post growth during the July-September period," Aida noted.

Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co., agreed, noting the reduction in inventories of cars, electronic parts, devices and personal computers. He said the government's stimulus helped spur demand for automobiles.

Muto also noted exports continued to be strong.

Exports of goods and services grew 6.4 percent in the quarter, up slightly from the initial reading of 6.3 percent.

Muto predicted that exports will grow at around 5 percent in the July-September period.

UBS's Aida, meanwhile, predicted the economy will likely continue to grow at an annualized pace of 3 percent through the October-December period, helped by the government's stimulus steps and the recovery of the global economy.

For the longer term, however, Aida forecast weaker growth — around 1 percent — in the next fiscal year starting in April as the effects of the stimulus fade.

Sumitomo's Muto also believes production will continue to grow through the July-September period. But he said the inventory adjustment is less likely to boost the economy beyond the October-December period.

Japan's growth will hinge on a recovery of the U.S. economy, a major consumer of Japanese products, Muto said. "We will ultimately have to depend on the U.S.," he said.

Following the GDP announcement, Finance Minister Kaoru Yosano said he hoped the incoming administration, led by the Democratic Party of Japan, will take necessary precautions to keep the economy on the recovery path.

"When reading that figure, we can clearly see that a full-scale economic recovery has yet to take hold," Yosano said in a news conference. "To get the economy pointed in the right direction for next year, the new administration will have to pay sufficient and complete attention to the management of the Japanese economy."

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The Japan Times

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