TOKYO, Sept 10 - Japan's economy grew at its fastest pace in 2-Ѕ years in the three months to the end of June as companies stepped up spending on machinery to feed strong demand for exports, revised data showed on Wednesday. The government said real gross domestic product expanded 1.0 percent in April-June from the previous quarter, up from an initial reading of 0.6 percent. On an annualised basis, Japan's economy expanded 3.9 percent, exceeding growth of 3.1 percent in the United States, the biggest single destination for Japanese exports. But while the data supported the view that the world's second-biggest economy is on the mend after its worst post-war downturn, many economists still harboured doubts.
"Overall, the number reinforces the view that Japan's economy has bottomed out and is moving into a recovery phase," said Norihiro Fujito, investment strategist at Mitsubishi Securities. The question for many was whether the strong growth would continue, particularly after a cool summer that dampened demand. "There's no doubt the economy is recovering, but the figures are probably overstating it," said Toshikimi Kaneki, economist at Sumitomo Trust and Banking. The GDP figures, which are adjusted for price changes, showed capital spending rose 4.7 percent from the previous quarter, also the biggest rise in 10 quarters. The government had initially reported a 1.3 percent rise in spending on plant and machinery.
As evidence of an improving climate for business, Casio Computer said on Wednesday that strong sales of digital cameras and watches would help it easily beat its group recurring profit forecast of six billion yen ($51 million) for the first half. Market reaction was restrained, but there was speculation that Japanese authorities had intervened in the currency market to hold back the yen from rising too much against the dollar. A strong yen, while reflecting optimism over Japan's economy and stock market, could undermine the export-led recovery by making Japanese goods more expensive on international markets. Stock market traders said the upward revision had already been factored into share prices. The Nikkei average, which has hit 14-month highs recently on the improved economic outlook, was down 0.65 percent at the end of the morning session.
GOOD FOR KOIZUMI
The stronger economic outlook gives Prime Minister Junichiro Koizumi an advantage as he goes into a Liberal Democratic Party leadership election on September 20. Failure to win the vote would most likely end his term as premier. Despite the budding optimism, however, analysts said the economy was still vulnerable as it suffered from chronic deflation and massive bad loans in the banking system. Tomoko Fujii, economic and market analyst at Nikko Citigroup, was among those who said the figures did not present a true picture of the economy. "The GDP annualised figure of 3.9 percent growth is not realistic, so I don't think this is sustainable," she said.
The government's top spokesman was also cautious. "We can't be optimistic about conditions," Chief Cabinet Secretary Yasuo Fukuda told a news conference. Many economists forecast slower growth ahead, saying unseasonably cold weather since July had discouraged consumers from shopping and eating out. "We may see a dip in GDP for July-September as personal consumption may be weak due to the cold summer and as special factors that pushed up demand fade," said Shuji Shirota, economist at Dresdner Kleinwort Wasserstein. "So it's important to look at April-June and July-September figures together, which means the economy is overall flat." Most analysts also agree the outlook largely depended on whether the United States sustained its recent recovery.
So far exports remain strong. Japan's trade surplus rose 7.1 percent to 970.9 billion yen in July, with exports up 5.4 percent at 4.3976 trillion yen and imports up 5.0 percent at 3.4267 trillion, the Ministry of Finance announced separately.//