Aug. 12 (Bloomberg) -- Japan's economic growth accelerated more than expected in the second quarter as Sharp Corp., Pentax Corp. and other manufacturers increased spending on factories and equipment to fill rising export orders. The world's second-largest economy grew 0.6 percent from the first quarter, seasonally adjusted, the Cabinet Office said in Tokyo. That was twice the revised 0.3 percent growth of the first quarter and more than the 0.2 percent median gain forecast in a Bloomberg News survey of 27 economists. ``The business spending environment is improving, and we see the economy strengthening in the second half of the year,'' said Fumio Urano, president of Pentax, which plans to spend 1 billion yen ($8.4 million) to increase production of optical disk drives used in DVD players.
A 1.3 percent increase in capital spending boosted sales at companies such as Omron Corp., Japan's biggest maker of manufacturing systems. Consumer spending, which makes up more than half the economy, must grow more than the second quarter's 0.3 percent pace to sustain a recovery from Japan's third recession in 12 years, economists said. ``Consumer spending was surprisingly good in the second quarter, though it still lacks strength to put the economy on a full recovery path,'' said Atsushi Nakajima, chief economist at Mizuho Research Institute, the only company in the survey to correctly forecast the 0.6 percent gain in GDP. Stocks rose after the report. The Nikkei 225 Stock Average gained 1.1 percent to 9589.46 at the 11 a.m. mid-day break in Tokyo, led by exporters such as Honda Motor Co.
Political Fortunes
The sixth consecutive quarter of economic growth may help Prime Minister Junichiro Koizumi's Sept. 20 bid for re-election as head of the ruling Liberal Democratic Party, a post he must keep to remain prime minister. Koizumi is pushing to dispose of 44.5 trillion yen of bad loans at Japan's banks and to end five years of falling prices that have eroded sales at Seiyu Ltd., Japan's fifth-largest retailer, and other stores. ``Japan's deflation is still deeply rooted,'' Koizumi's economic and fiscal policy minister, Heizo Takenaka, told reporters today. The economy ``is flat in a very broad sense.''
The 1 percent bond due in 2013 rose 0.045 to 101.085 at 11:15 a.m. in Tokyo, according to Japan Bond Trading Co. Its yield fell half a basis point to 0.880 percent after rising as much as 2 basis points. A basis point is 0.01 percentage point.
U.S. Recovery
Exports, which account for 10 percent of Japan's economy, rose 1 percent in the second quarter from the first. The end of major combat in Iraq on May 1 and the containment of the deadly SARS virus in Asia are helping overseas sales. Japanese exporters are benefiting from a recovery in the U.S., the world's biggest economy, which grew at an annual 2.4 percent pace in the second quarter, compared with 1.4 percent in the first. Germany's economy, the third-largest, probably shrank 0.1 percent in the second quarter, according to a Bloomberg News survey. Matsushita Electric Industrial Co., Toyota Motor Corp. and other exporters have led a 26 percent rally in the Nikkei since it fell to a 20-year low on April 28. Today's report and other signs of economic strength are ``forming the base for a continued rally in Japan,'' said Alex Muromcew, who helps manage $600 million in stocks globally as a fund manager for Loomis Sayles & Co. in San Francisco.
Confidence
Sharp, Japan's largest maker of liquid-crystal displays, has set a 108 billion-yen budget for equipment this business year, an increase of 50 percent. The company last month said first-quarter sales rose 7.2 percent, and it expects sales to grow at that pace for the business year ending March 31. Advantest Corp., the world's biggest maker of memory-chip testing equipment, had its first quarterly profit in two years in the three months to June 30 because chipmakers such as Toshiba Corp. increased spending. Advantest raised its forecast for testing-machine orders by 4 percent to 135 billion yen for the year ending March 2004. The Bank of Japan's quarterly Tankan survey, the most widely watched measure of business confidence, last month 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.
Falling Prices
Government sales of yen to keep the currency from rising against the dollar have helped exporters. Japan sold a record 9.03 trillion yen from January through July. The euro gained 7.5 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 from 5.4 percent in May, the first decline in four months, as companies such as Canon hired more workers. Wages rose in May and June after falling for two years. That hasn't helped retailers companies such as Seiyu, which said last week that it expects a 10 billion yen group net loss for the six months ending Aug. 31 as consumers curb spending. It earlier expected to break even. The Bank of Japan said yesterday that consumer prices would extend their declines. The bank cut interest rates almost to zero in March 2001 to pull Japan out of a decade-long slump and promised to keep them there until prices start to rise. ``We've seen little improvement as far as our actual business,'' Tasuku Kondo, chief financial officer at Japan's second-biggest trading company, Mitsui & Co. Ltd., said last week. ``Deflation and the reasons behind it, particularly in the financial sector, still persists.'' From a year earlier, the economy grew 2.1 percent, today's report said. The economy grew at an annualized pace of 2.3 percent in the second quarter.//www.bloomberg.com