TOKYO (MNI) – Japan’s economy contracted by 0.9% on quarter in
January-March, unrevised from the initial reading reported last month,
as a smaller-than-expected private-sector inventories decline offset a
larger-than-estimated slump in business investment, the Cabinet Office
said Thursday.

To be exact, the Q1 GDP contraction was revised up slightly to
-0.88% from a preliminary -0.93%, a Cabinet Office official told
reporters.

On an annualized basis, GDP fell 3.5%, revised up slightly from a
preliminary 3.7% fall, as the upward revision to inventories slightly
more than offset the downward revision to capex.

The sharp Q1 contraction followed -0.7% q/q and -2.9% annualized in
the final quarter of 2010, which was revised up from -0.8% and -3.0%
reported earlier.

The latest GDP performance was far below the economy’s potential
annual growth rate, estimated by the Bank of Japan to be about 0.5%, and
is the second consecutive quarterly drop.

The annualized 3.5% drop came in weaker than the median forecast by
economists for -3.1% in a survey by Market News International.

Economists expected the second preliminary GDP figures to be
slightly revised up from the initial estimate, reflecting an upward
revision to private-sector inventories found in the latest quarterly
survey by the Ministry of Finance released a week ago.

The MOF survey also showed non-financial firm capex rose 3.3% in
the three months to March 31 from a year earlier, marking the third
consecutive year-on-year gain but slowing from a 3.8% gain in the
previous quarter and a 5.0% rise in July-September 2010.

On a seasonally adjusted, quarter-over-quarter basis, capex
excluding spending on software fell 0.2% in January-March, posting the
first fall in four quarters, according to the MOF survey.

The Cabinet Office uses this key piece of demand-side data to
calculate revisions to first preliminary GDP, which is based only on
supply side capex information.

From a year earlier, Q1 GDP fell an unrevised 1.0%, marking the
first y/y drop in five quarters, after rising an unrevised 2.2% in the
fourth quarter of 2010.

The latest estimate for private non-residential investment, or
capex, was revised down to a 1.3% quarter-on-quarter fall from the 0.9%
drop initially reported.

Capex pushed down Q1 GDP by 0.2 percentage point, instead of 0.1
percentage point as reported last month.

Private-sector inventories, another major factor in calculating
revisions to GDP, pushed down Q1 GDP by 0.4 percentage point, less than
the initial estimate of -0.5 point.

As a result, the contribution of domestic demand to the first
quarter GDP was revised up to -0.7 percentage point from the -0.8
percentage point originally reported.

Private consumption fell 0.6% in Q1 from Q3, unchanged from the
preliminary reading. Its contribution to GDP was also unrevised at -0.3
percentage point.

As seen in last month’s preliminary data, net exports (exports
minus imports) pushed down Q1 GDP by -0.2 percentage point.

Government consumption was revised down to +0.9% from +1.0% but its
contribution to Q1 GDP was unchanged at +0.2 percentage point.

The key points of the latest GDP data:

– Exports were unrevised at +0.7% q/q (vs. -0.8% in Q4).

– Imports were revised down to +1.9% q/q from +2.0% in Q1 (vs.
-0.3% in Q4).

– Private consumption fell 0.6%, unrevised from the initial figure
(vs. -1.0% in Q4), and its negative contribution to Q1 GDP was an
unrevised -0.3 percentage point.

– Private capital expenditures were revised down to -1.3% q/q from
a preliminary -0.9% in Q1 (vs. revised +0.0% in Q4). Its contribution
was revised down to -0.2 percentage point from -0.1 point.

In nominal terms the economy fell 1.3% q/q, unrevised from the
preliminary figure in the January-March quarter after a revised 0.9%
fall in the previous quarter.

In 2010, real GDP rose an unrevised 4.0%, sharply improving from a
6.3% fall in 2009.

In fiscal 2010 that ended on March 31, real GDP rose 2.3%, also
unrevised from the initial estimate, and compared with -2.4% fall in
fiscal 2009 and -4.1% in fiscal 2008.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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