11 August 2003, 09:16  Japan's Second-Quarter Economic Growth Probably Accelerated, Survey Says

Aug. 11 (Bloomberg) -- Japan's economic growth probably accelerated in the second quarter as Sharp Corp. and other exporters invested profits in new machinery and equipment in anticipation of growing orders, economists said. The world's second-largest economy probably expanded 0.2 percent from the first quarter, according to the median forecast in a Bloomberg News survey of 24 economists. That would follow growth of 0.1 percent in the first quarter, the slowest in a year. The Cabinet Office is scheduled to release its gross domestic product report at 8:50 a.m. tomorrow. ``We've seen a significant pickup in orders for our machinery and we feel that the economy has been quite resilient,'' said Hitoshi Kondo, head of the finance division at Omron Corp., Japan's largest maker of manufacturing systems. The company said sales rose 15 percent during the April-to-June quarter. Sharp Corp., Japan's largest maker of liquid-crystal displays, and Canon Inc., the world's third-largest maker of digital cameras, led a 14 percent rally in the Nikkei 225 Stock Average in the second quarter as overseas sales rose. Economic growth won't be sustained unless rising exports are matched by gains in consumer spending, which makes up more than half the economy, investors said.
``The recent rally has been mostly driven by optimism for a recovery in external demand,'' said Tadatoshi Kaneko, who helps manage the equivalent of $16 billion as a fund manager at T&D Asset Management Co. in Tokyo. ``We've benefited from signs of recovery in the U.S., but the domestic demand situation remains sluggish.''
Political Fortunes
A growing economy will boost the political fortunes of Prime Minister Junichiro Koizumi, who has promised to clean up $374 billion of bad loans at Japan's banks and curb the national debt, which is the developed world's highest at about 140 percent of gross domestic product. Koizumi on Sept. 20 faces re-election as head of the ruling Liberal Democratic Party, a post he must keep to remain prime minister. Benchmark 10-year government bond yields almost doubled by the end of the second quarter after touching a record low of 0.43 percent on June 11 as investors anticipated an economic recovery. The yield on the 1 percent bond maturing in 2013 was unchanged at 0.87 percent at 10:37 a.m. in Tokyo. Japanese manufacturers are benefiting from a recovery in the U.S., the world's biggest economy and Japan's largest export market. The U.S. economy grew at a 2.4 percent annual pace in the second quarter, compared with 1.4 percent in each of the previous two quarters. Germany's economy, the world's third-largest, probably shrank 0.1 percent in the second quarter, according to a Bloomberg News survey.
Business Confidence
Three months of rising exports prompted companies to invest more in the second quarter. Machinery orders rose in June for a second month as companies such as Toshiba Corp. bought more equipment to make semiconductors. Exports and business spending together make up about a quarter of the economy. The Bank of Japan's quarterly Tankan survey, the most widely watched measure of business confidence, showed that large manufacturers in the second quarter were the least pessimistic in more than two years and planned to increase investment by 11.5 percent in the year to March 31. Advantest Corp., the world's biggest maker of memory-chip testing equipment, had its first quarterly profit in two years in the quarter because chipmakers such as Toshiba increased spending. Advantest raised its forecast for testing-machine orders by 4 percent to 135 billion yen for the year ending March 2004. Asahi Glass Co., Japan's biggest glassmaker, said in June it will spend 18 billion yen to expand production of glass components for liquid crystal displays by two-fifths to meet higher demand from Sharp and other customers.
Yen Selling
Toshiba said last month it expects semiconductor sales to rise 9 percent to 900 billion yen this business year. Toshiba plans to spend 118 billion yen on factories and equipment for its chip business in the year ending March 2004. The Bank of Japan helped manufacturers as it sold a record 9.03 trillion yen from January through July to prevent gains in the currency, which would make exports more expensive. The euro gained 8 percent against the dollar this year, while the yen has been little changed at a 0.1 percent decline. Unemployment fell to 5.3 percent in June, the first drop in four months, from 5.4 percent in May as companies hired more workers. Rising employment contributed to an increase in consumer confidence from a five-year low in the second quarter.
Unemployment
Consumers haven't overcome their reluctance to spend as prices extend five years of declines. Seiyu Ltd., Japan's fifth- largest retailer, said last week that it expects a 10 billion yen group net loss for the six months ending Aug. 31, hurt by falling spending. It earlier expected to break even. The ranks of the jobless may rise as companies such as Japan Radio Co., which makes radio communication equipment for NTT Corp., move to slash jobs to cut costs.
``Business was extremely tough in the past year,'' said Chiaki Akiyama, a spokesman for Japan Radio Co., which has cut about 500 jobs in the past three years. ``The second half of the year should be much better, but we still need to push through with early retirement programs.'' From a year earlier Japan's gross domestic product probably rose 1.3 percent in the second quarter, according to the Bloomberg survey. The economy probably grew at an annual 0.6 percent pace, seasonally adjusted.//www.bloomberg.com

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