Japan raised its estimate for first- quarter economic growth to a 6.1 percent annual pace because companies increased inventories more than predicted to meet rising demand for cell phones, flat-panel displays and digital cameras. The expansion compares with an initial estimate of 5.6 percent growth reported by the Cabinet Office in Tokyo last month and a median 5.8 percent gain forecast by 12 economists in a Bloomberg News survey. Quarter-on-quarter, the economy grew 1.5 percent, more than the earlier estimate of a 1.4 percent gain.
Growth in inventories contributed one-third of the expansion in the world's second-largest economy, signaling that manufacturers are optimistic about the outlook for sales, said economists including Ryota Sakagami. A slower-than-predicted gain in capital spending doesn't change the outlook for a further expansion of Japan's economy this quarter, he said. ``One reason inventories are rising is because of the anticipation of higher demand,'' said Sakagami, a member of the economic research team at Nomura Securities Co. ``Increasing profits along with rising demand'' will fuel capital spending. Bonds fell and the yen strengthened after comments by Prime Minister Junichiro Koizumi and central bank Governor Toshihiko Fukui supported expectations of that Japan will extend the longest run of growth since 1997. The yield on the benchmark 1.6 percent bond due June 2014 rose 7 basis points to 1.765 percent at 1:23 p.m. in Tokyo. A basis point is 0.01 percentage point. The yen rose to 109.21 to the dollar from 109.65 late yesterday in New York.
`Recovery Trend'
The Nikkei 225 Stock Average fell 0.3 percent to 11,492.21 at 1:19 p.m. in Tokyo as gains in business spending failed to meet economists' forecasts. Today's revised gross domestic product report ``more clearly shows the economy's recovery trend,'' Fukui told a parliamentary committee. ``Japan's long-term rates have risen a bit recently as the global economy has grown faster than what people had expected.'' Koizumi told U.S. President George W. Bush that Japan's economic recovery is sustainable because domestic demand, rather than exports alone, is driving expansion, a Japanese official said. The leaders were at the Group of Eight meeting in Sea Island, Georgia. Consumer spending grew 1 percent from the fourth quarter, unchanged from the initial report. Consumer spending makes up more than half of Japan's economy and accounted for about a third of the expansion.
Benefits for Koizumi
Better-than-expected growth may boost Koizumi's standing within his Liberal Democratic Party as it prepares to contest elections to the upper house of parliament next month and add impetus to his efforts to sell state companies push banks to clean up bad loans. Economic growth ``is supportive to Koizumi in his battle against anti-reformers,'' said James Barber, a political analyst at Barclays Capital Research Japan Ltd. Inventories rose to 3.04 trillion yen ($27.7 billion) in the first quarter from an initial estimate of 875 billion yen, today's report said. Business spending rose 1.7 percent, compared with an initial estimate of 2.4 percent growth. Government spending rose 0.4 percent, compared with an initial estimate of a 0.2 percent gain. Fourth-quarter growth was revised to an annual 7.1 percent pace, the fastest since June 1990, from an initial 6.9 pace. Quarter-on-quarter, the economy grew a revised 1.8 percent in the final three months of the year. Japanese manufacturers have been benefiting from growing global demand for their exports, which grew 0.5 percent in April, the fifth gain in six months.
Exports
Pioneer Corp., which makes plasma displays for flat-screen televisions, said in April it is speeding up the start of a new production line with an annual capacity of more than 300,000 panels by more than a month to meet demand. Rising exports and corporate profits are generating jobs, spurring the consumer spending that makes up more than half of the economy. Spending by households headed by a salaried worker had a record gain in April, jumping a seasonally adjusted 9.3 percent from March. Unemployment held steady at a three-year low of 4.7 percent as the economy added 240,000 jobs, the most this year. Wages rose in April for the first time in 10 months, adding to expectations that consumption will contribute to growth in coming months. ``With consumption firm, growth will be more stable than it was in the past,'' said Yoshimasa Maruyama, an economist at Mizuho Research Institute. ``Consumers are more confident now with employment rising and wages bottoming out.'' ///www.bloomberg.com