TOKYO (MNI) – Japan’s economy expanded for the fourth straight
quarter in the July-September period, with the pace of growth
accelerating from the second quarter, due large to strong private
consumption, the Cabinet Office said on Monday.

Gross domestic product grew 0.9% in the July-September period from
the previous quarter, or at an annualized pace of 3.9%, up from a
revised +0.4% q/q and 1.8% annualized in the second quarter (revised
from +0.4% q/q and +1.5% annualized).

Q3 growth was above the median forecast for a 0.6%
quarter-on-quarter rise, or an annualized gain of 2.5%, in a Market News
survey of economists. The forecasts ranged from 0.5% to 1.1% q/q rise,
or at an annualized pace of 1.9% to 4.5%.

The rise in Q3 growth was due entirely to stronger domestic demand,
while net exports were flat on the quarter.

Q3 domestic demand rose 1.0% q/q after a revised 0.1% gain in the
second quarter. Domestic demand added 0.9 percentage point to Q3 GDP, up
from a 0.1 point contribution in the second quarter.

Within domestic demand, growth in private consumption, which makes
up about 60% of GDP, surged 1.1% q/q in Q3, well above the 0.1% gain in
Q2, contributing 0.7 percentage point to Q3 GDP (vs. no contribution in
Q2).

Capital spending rose for the fourth straight quarter but growth
decelerated to 0.8% in Q3 from +1.8% in Q2. Capex contributed 0.1
percentage point to Q3 GDP (vs. +0.2 point in Q2).

Inventory changes added 0.1 percentage point in Q3 after pushing
down overall growth by 0.1 percentage point in the second quarter.

Housing construction rose 1.3% in the third quarter, after falling
0.8% q/q in Q2. Still, this category made no net contribution to Q3 GDP.

Net exports made no contribution to Q3 GDP after adding 0.3
percentage point in Q2.

Exports were up 2.4% on quarter, the sixth consecutive quarterly
gain, slowing from +5.6% in the previous quarter, while imports rose
2.7% q/q, marking the fifth consecutive quarterly increase (also slowing
from +4.0% in Q2).

From a year earlier, Q3 GDP rose 4.4%, the third straight y/y rise,
after rising 2.7% in Q2.

In nominal terms, Q3 GDP expanded by 0.7%, or an annualized 2.9%,
up for the first time in two quarters.

Deflation accelerated in the third quarter, the GDP data showed.

The GDP deflator was down 2.0% from a year earlier after falling
1.8% in the second quarter. And the domestic demand GDP deflator fell
1.2%, compared with a 0.7% fall the quarter before.

Market focus has shifted to how much Japan’s economy will weaken in
the fourth quarter.

Private economists expect October-December GDP to contract
quarter-on-quarter, due to a payback for high durable goods spending in
the previous quarter.

The Bank of Japan said in its semi-annual Outlook Report released
on Oct. 28 that the the board revised down its fiscal 2010 real GDP
forecast to +2.1% from its July projection of +2.6% due to weaker
overseas demand, the fading effects of fiscal stimulus, and the recent
appreciation of the yen.

The board’s median GDP forecast for fiscal 2011 is little changed
at +1.8% vs. the +1.9% forecast in July.

But for fiscal 2012, GDP is forecast to rebound slightly to +2.1%,
well above Japan’s potential growth rate estimated by the BOJ to be
around 0.5%.

The potential growth estimate was unchanged from that provided in
April.

The BOJ said on Oct. 28 that “Japan’s economy still shows signs of
a moderate recovery, but the recovery seems to be pausing.”

The BOJ also said that Japan’s economy is likely to grow at a
slower pace for some time, but is expected to return to a moderate
recovery path thereafter as the growth rate of the global economy is
likely to start increasing again led by emerging and commodity-exporting
economies.

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

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