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Japan's Economy Grows 1.3% in Fourth Quarter

Reuters
Sunday, 11 Mar 2007 | 9:20 PM ET

Japan's economy expanded by 1.3% in the final quarter of last year, revised data showed on Monday, up slightly from a preliminary reading due mainly to companies' capital spending.

But separate government data showed that year-on-year growth in wholesale prices slowed in February for the fifth straight month, signaling that Japan is emerging from deflation only at a very slow pace.

The results are unlikely to change the dominant market view that the Bank of Japan, which holds a two-day policy meeting on March 19-20, will go slow in any future rate hikes.

The world's second-largest economy grew 1.3% in real, price-adjusted terms in October-December from the previous quarter, matching a consensus forecast and slightly higher than a preliminary reading of a 1.2% expansion, Cabinet Office data showed.

On an annualized basis, GDP grew 5.5%, up from a preliminary reading of a 4.8% rise. That compared with economists' consensus forecast for a revision to 5.3% and was the biggest rise since October-December 2003, when it grew 6.3%.

The main reason for the upward revision was an acceleration in capital spending, which was marked up to a 3.1% increase from a preliminary 2.2% rise, in line with a consensus forecast.

"The figures are mostly as expected, with the upward GDP revision almost entirely attributed to higher-than-expected capital expenditure growth," said Yoshiki Shinke, an economist at Dai-ichi Life Research Institute. "There's no change to our view that the economy continues to enjoy quite strong growth," he said.

Market Reaction

Financial markets showed little reaction to the data, although the yen edged up to 118.15 to against the dollar from near 118.35 yen before the data release.

Economists had expected an upward revision in the GDP data after Ministry of Finance data showed last week that companies boosted spending on plant and equipment by 16.8% in October-December compared with the same period a year earlier.

The revised data also showed personal consumption, which makes up about 55% of the economy, rose 1.0% from the previous quarter, compared with an initial estimate of a 1.1% rise.

Separate government data showed on Monday that the corporate goods price index (CGPI), which tracks trends in wholesale prices of goods, rose 1.8% in February from a year earlier, matching a consensus market forecast and a slower pace of growth than January's 2.2% increase.

Current Account Surplus

Data released on Monday also showed Japan's current account surplus expanded 49.8% in January from the same month a year earlier to 1.19 trillion yen ($10.06 billion), beating a consensus forecast for a 35.7% rise to 1.08 trillion yen.

The BOJ raised its key lending rate by a quarter percentage point to a decade-high 0.50% last month, judging that the economy would stay on track for steady growth with prices seen in an uptrend.

Japan is currently enjoying its longest period of economic expansion in the postwar era, albeit at a slower pace than previous booms, thanks to solid exports and capital spending.

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