TOKYO, Feb 18 - Japan's economy grew at its fastest clip in over 13 years in the October-December quarter as robust growth in the United States and China boosted exports and spurred business investment. Defying worries about the strength of the yen, gross domestic product (GDP) expanded by 1.7 percent from the previous quarter, beating a forecast from economists of 1.1 percent and the biggest gain since April-June 1990, government data showed on Wednesday. The economy grew by an annualised 7.0 percent, exceeding a forecast of 4.6 percent and comfortably beating the 4.0 percent growth in the United States in the same period. It was the fourth straight quarter of growth, marking the longest period of expansion in Japan since a nine-quarter run that ended in early 1997.
Nominal GDP, which strips out the effects of price changes, rose 0.7 percent, the third straight quarter of growth. "The basic message is that the speed of economic growth improved dramatically towards the end of calendar 2003, driven by exports and corporate investments," said Richard Jerram, chief economist at ING Securities. "And I think the outlook remains good going into 2004." Strong overseas demand for Japanese products such as digital cameras, flat panel TVs and cars has helped offset the rise of the yen, which Japanese authorities have declared Public Enemy No.1 because of its potential impact on exports and profits. The government has spent more than 27 trillion yen ($256 billion) since January 2003 to try to rein in the Japanese currency and keep Japan's export-led recovery going. The yen rose 10 percent against the dollar in 2003 but companies have adjusted by restructuring and cutting costs. On Wednesday it was steady around 105.65 to the dollar. "The government may find it difficult to intervene in the currency market, given its case for such action -- that the yen should not strengthen when economic fundamentals are weak -- could be weakened," said Norihiro Fujito, a senior investment strategist at Mitsubishi Securities. But Economics and Financial Services Minister Heizo Takenaka said currency levels and capital flows remained among the risks for Japanese growth, even though the recovery was firm. "I had expected that growth would be above private economists' expectations, but it exceeded even that," he told reporters. "The economy is recovering steadily, led by demand from the private sector."
EXPORTERS THRIVING
The strong growth helped stock prices, with the Nikkei average up 0.31 percent by midsession. "This is strong confirmation that Japan's economy is on a recovery track," said Tsuyoshi Segawa, a strategist at Shinko Securities. Exports were up 4.2 percent in October-December, the biggest gain since April-June 2002. Imports also rose, with televisions and videos growing in part due to Japanese companies re-importing products from overseas plants. Big exporters such as auto maker Toyota Motor Corp <7203.T> and electronics firms Canon Inc <7751.T> and Sharp Corp <6753.T> reported strong earnings in the quarter. "The economy has improved considerably," said Canon President and Chief Executive Fujio Mitarai this week. "It has been said that Japan was finished, that it had no future. But I believe that is not the case at all." Capital expenditure by businesses grew by 5.1 percent in the quarter over July-September, beating a poll forecast of a 3.9 percent gain, helped by the construction of new factories and office buildings and demand fort industrial machinery. "Capital expenditure was really strong. Other figures were mostly in line with consensus forecasts, so this shows investment on machines was really strong in this quarter," said Hiroshi Yokotani, an economist at Tokio Marine Asset Management.
Private consumption rose by 0.8 percent compared with a forecast 0.6 percent. Nevertheless, problems remain. Deflation is still a burden, though price falls have moderated in recent months. The consumer price index fell 0.3 percent in 2003, the fourth straight year of decline. And, unlike bigger companies, many of Japan's small firms are still not seeing any real pick-up in activity. Yoko Hayashi, 67, who has run a retail clothing shop in a suburb of Tokyo for 26 years, said the backdrop for her business was the worst she had seen. "Overall, in my industry the business climate continues to be very bad, with many companies either shrinking or going bankrupt," she said. "My shop survives only because I have a set clientele that is not severely affected by economic downturn, but the company's performance still remains flat from the previous fiscal year."///