Japan's Economy Expands Slightly

Japan's economy expanded by a slightly weaker than expected 0.2% in the three months to September, revised data showed on Friday, underscoring the view that soft personal consumption and a slowdown in capital spending have kept overall growth modest.

But the data did not derail expectations that the Bank of Japan may raise interest rates later this month, as it was not weak enough to change the dominant market view that the economy is on track for slow but steady expansion.

Growth in gross domestic product (GDP) for July-September was revised down from a preliminary reading of 0.5 percent in real price-adjusted terms, falling slightly short of economists' expectations of a 0.3% rise.

On an annualised basis, GDP grew 0.8%, compared with a preliminary reading of a 2.0% rise and economists' consensus forecast for a revision to a 1.1% expansion.

"Private consumption was notably bad due to weak consumption in the summer as well as sluggishness in wage gains," said Takeshi Minami, chief economist at Norinchukin Research Institute.

Japan's growth for April-June was also revised down to 0.3% from 0.4%.

As expected, the main culprit for the downward revision was a slowdown in capital expenditure growth, which was marked down to a 1.5% increase from a preliminary 2.9% rise. But private consumption also played a part. The revised GDP data showed domestic consumption shrank 0.9% in the three months to September, more than an initial estimate of a 0.7% fall.

Financial markets did not react much to the data, although the yen rose modestly against the dollar and the euro after the data.

The GDP deflator -- a measure used to derive real GDP from nominal GDP by adjusting for price changes -- fell 0.7% from a year earlier, compared with a preliminary reading of a 0.8% decline.
The BOJ has kept monetary policy on hold after raising its overnight call rate target to 0.25%from zero in July, which was the first rate rise in six years.

Market traders are divided over whether the BOJ would hike rates this month, or whether it will wait until early next year to spend more time examining how downside economic risks, such as a U.S. economic slowdown, could affect Japan's economy.

Other data showed that the balance of outstanding loans held by Japanese banks rose 1.2% in November from a year earlier as demand for funds kept pace with a steady economic recovery.

Money supply as measured by M2 plus certificates of deposits rose 0.7% in November from a year earlier, matching the market's consensus forecast.