Tokyo, Nov. 13, (Bloomberg) -- Japan's economy grew more than expected in the third quarter as consumer demand rose at its quickest pace in 18 months. A top government official said growth is already faltering as exports slow. Gross domestic product rose 0.7 percent, higher than the 0.5 percent median forecast in a survey of analysts by Bloomberg News. The government revised its estimate for second-quarter growth, almost doubling it to 1 percent from 0.6 percent.
Consumer spending rose 0.8 percent in the third quarter as unusually warm weather lured shoppers to Ito-Yokado Co. and other retailers. Economic and Fiscal Policy Minister Heizo Takenaka said ``the tempo'' of recovery is slowing and that exports are threatened, especially by U.S. economic weakness. ``The export-led recovery in the second quarter passed the baton on to the domestic economy,'' said Tomoaki Shishido, an economist at Nomura Research Institute. ``We'll see the recovery slowing down next quarter though.''
Prime Minister Junichiro Koizumi, who's trying to bring Japan out of a 12-year slump by cleaning up an estimated 52.4 trillion yen ($438 billion) of banks' bad loans, said the third-quarter figures were ``quite good.'' Japan may exceed its forecast of zero growth for the fiscal year ending March 31, he said. The government cut its assessment of the economy for the first time in a year in its monthly report yesterday, citing slumping exports and declining stock prices.
Stocks
The Nikkei 225 Stock Average fell 0.3 percent to 8438.52 as of the 3 p.m. close of trading in Tokyo after falling as much as 0.9 percent. The Nikkei has fallen 20 percent this year. The yen fell against the dollar, snapping a six-day rally, to be trading at 119.68 to the dollar at 3:14 p.m. Japan time from 119.60 late Tuesday in New York.
Consumer spending, which accounts for about 55 percent of the economy, rose as shoppers tapped savings to buy video games, air conditioners and other electronic products. Warm weather and pent- up demand following the World Cup soccer tournament also helped.
``We saw strong sales in the third quarter thanks to the good weather, which helped sales of food, clothing and beverages,'' said Yasuo Takaha, spokesman for Ito-Yokado Co., Japan's biggest retailer. ``Unfortunately, the outlook is not that good.'' Consumer spending is faltering as exporters cut jobs and wages in response to declining overseas sales, especially to the U.S., Japan's biggest market. Export growth slowed to 0.5 percent in the third quarter from 5.9 percent in the second, today's report showed.
Hitachi Ltd., Japan's largest electronics maker, cut its net profit forecast 40 percent to 36 billion yen for the fiscal year ending in March. Hitachi relies on the U.S. market for a third of its sales. ``Our orders for semiconductors and liquid crystal display panels have been falling, and at best our sales and business investment next fiscal year will be at this year's level,'' said Keisaku Shibatani, spokesman at Hitachi Ltd.
Investment
Shares of Murata Manufacturing plunged 17 percent yesterday to a 3 1/2-year low after it cut its annual income forecast on slowing sales of mobile phones and personal computers. The company is the world's largest maker of ceramic capacitors to regulate electricity in those devices. Business spending fell 0.9 percent in the third quarter, today's report showed, as the yen's 10 percent gain against the dollar this year reduced exporters' earnings. As a result, manufacturers are cutting investment in factories and machinery.
``We have more risks as the yen rises higher,'' said Ritsu Hagio, general manager of Toku Pneumatic Co., a digging equipment maker that relies on the U.S. for a quarter of its sales. ``We never expected the yen to rise higher than the 120 level.''
Bad Loans
Advantest Corp., the world's biggest maker of memory-chip testing equipment, is paring spending on new plants and equipment as growth in demand for personal computers and mobile phones slows. The Tokyo-based chipmaker said it would cut 600 jobs to weather the slump. Koizumi's drive to speed write-offs of bad loans may hurt the economy as lenders cut off delinquent borrowers, forcing them into bankruptcy. That's likely to drive up an unemployment rate already hovering just below a record high 5.5 percent.
Koizumi wants to cut Japan's dependence on exports by getting UFJ Holdings Inc. and other banks to write off bad loans so they can start lending again. Bank lending hasn't risen for more than six years, depriving the economy of the fresh credit it needs to grow, even as the central bank cut short-term interest rates almost to zero in March 2001. This year's 20 percent drop in the Nikkei 225 Stock Average is making it harder for banks to lend by inflicting losses on their stock investments, cutting their capital. The Bank of Japan in September announced a plan to buy some of the $200 billion of shares held by banks to reduce their losses. //www.quote.bloomberg.com