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Japan economy grows again, points to recovery

16 may 2013, 16:46
0
©AFP
©AFP
Japan said Thursday that its economy grew again in the quarter to March, pointing to a recovery as Tokyo and its hand-picked central bank team set about stoking the world's third-largest economy, AFP reports.

The 0.9 percent on-quarter growth -- or 3.5 percent on an annualised basis if the data were stretched over a year -- confirmed Japan's exit from recession as consumers spent more, although the nation's cautious firms did not follow suit.

The data were seen by some observers as an early mark of success for Prime Minister Shinzo Abe's bid to stimulate the long-stagnant economy with a policy prescription of big government spending and aggressive central bank easing.

Dubbed "Abenomics", the moves mark a renewed assault on the deflation that has plagued Japan's economy for years, crimping private spending and business investment.

The central bank's recent policy moves have helped push down the value of the yen, giving a boost to the export sector as it makes Japanese firms more competitive overseas and inflates the value of repatriated foreign income.

The currency's steep decline in recent months -- losing around one-quarter of its value since November -- has translated into a huge rally on the Tokyo Stock Exchange with foreign investors piling into Japanese stocks.

"The Japanese economy is on the right tack to recovery," said Hideki Matsumura, senior economist with the Japan Research Institute.

"Individual spending is picking up as the value of their assets, including stock prices, increased on the back of the brighter economic outlook. Exports are also recovering. The economy is expected to grow further for now thanks to the impact of Abenomics."

But Masamichi Adachi, senior economist at JP Morgan Securities Japan, preached caution, noting the 0.7 percent on-quarter drop in spending by firms.

"The biggest disappointment is a fall in capital spending," he told Dow Jones Newswires.

Japan eased out of recession in the last quarter of 2012, after the economy shrunk on weak export demand tied to financial turmoil in the key European market, a strong yen and a diplomatic row with China that sparked a consumer boycott of Japanese goods.

Meanwhile, Japan logged a modest pickup in factory output in March as the nation's unemployment rate hit a multi-year low.

But the country's trade deficit more than quadrupled to 362.4 billion yen ($3.6 billion) in March compared to the same period a year earlier, as a weaker yen inflated import costs.

The weaker yen, while generally good for exporters, makes foreign goods more expensive and has sent Japan's energy bills soaring as it turned to pricey fossil-fuel alternatives after shutting its nuclear reactors in the aftermath of the Fukushima atomic crisis two years ago.

The dollar bought 102.06 yen in Asian forex trade Thursday, well up from a record low around the 75 level in late 2011.

In its semi-annual report last month, the Bank of Japan estimated 2.9 percent growth in Japan's economy for the fiscal year to March, up from an earlier 2.3 percent projection made in January, as it noted that the economy "stopped weakening and has shown some signs of picking up".

It also tipped inflation to hit 0.7 percent, up from an earlier 0.4 percent projection, as the battle to beat falling prices continues.

The BoJ has pledged to meet a two percent inflation target within two years, a key aim of the government.

Deflation is bad for the economy because it encourages consumers to put off spending in the belief their intended purchases will be cheaper in the future, softening demand and hurting producers.

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