More good news for Australia, our second biggest export market, Japan, has had its second consecutive quarter of economic growth.
Figures released yesterday in Tokyo show the pace of expansion in the Japanese economy increased in the third quarter.
It was in fact the fastest growth in more than two years in the third quarter, as the government stimulus packages boosted consumer spending and halted the slump in capital spending.
But private consumption and exports both fell from the second quarter, leaving the economy more dependent on government stimulus spending than ever.
Japan’s economy grew 1.2% in the July-September three months from the previous quarter, faster than the median estimate for 0.7% growth.
It was the largest gain in gross domestic product since a 1.4% rise in the first quarter of 2007, well before the credit crunch hit.
It was up from the newly revised 0.7% growth expansion in April-June, which was the first growth in five quarters (that quarter’s growth was originally set at 0.9%, then cut to 0.6% in a second estimate, and then increased to the latest estimate).
Yesterday’s first estimate for the September quarter will probably be adjusted as well given that not all the figures are in for the quarter, especially the current account.
The latest rate for the September quarter is equal to around 4.8% annually, which compares to the first estimate for the June quarter of 3.7% and 2.8% yesterday.
The temporary process of rebuilding inventories was a big contributor, however, on top of the stimulus spending.
In fact the growth reading was neatly divided three ways.
Around one-third was due to growth in private consumption, one-third was due to increased inventories, and one-third came from net exports.
But with stimulus programs such as subsidies to scrap cars due to expire, many economists see first half growth slowing to around 0.1% a quarter in the June half of 2010.
The growth figures are good news for the new Democratic Party-led government which has been facing increasing scepticism about its policies to support households and its ability to handle Japan’s bloated debt and spending.
Tokyo reports say the new government is contemplating yet another stimulus package to help growth in the first half of next year.
The Bank of Japan meets later this week and won’t change interest rates, but it may give a hint to future policy directions with its comments on quantitative easing and whether it and the monetary and corporate funding measures remain in place to support growth.
There has been speculation the central bank could be about to end its support of corporate funding as an early sign of its determination to start winding back official support for the economy.
Private consumption rose 0.7% in the September quarter; better than a forecast for a 0.5% rise but slower than the 1.0% rise in the June quarter.
Domestic demand contributed 0.8 percentage point to growth, the first positive contribution in six quarters.
Capital expenditure rose 1.6%, also the first gain in six quarters and much stronger than the weak 0.1% forecast by the market.
External demand contributed 0.4 percentage point, much slower than the 1.5 percentage point contribution in the previous quarter.
So even in the good news there were a couple of quibbles: private consumption is not as strong as it looks and export demand has already tapered.
And of course there’s the high value of the yen, which traded around 86 to the US dollar yesterday, far under the 100 yen level that many big exporters feel comfortable with.
