TOKYO: Defying gloomy expectations, Japan’s economy chalked up a surprisingly strong growth of 0.5% in the last three months of 2002, thanks to healthy exports and higher-than-expected demand at home.
But the rare dose of good news was tempered by the slower pace of the expansion and the data failed to dispel doubts about the sustainability of the now year-long recovery.
Apart from deflation and worries about a war in Iraq, uncertainty also lingered over whom the prime minister will select as new head of the Bank of Japan (BoJ), which continued to frustrate many politicians yesterday by leaving monetary policy unchanged.
The government said earlier that gross domestic product (GDP) of the world’s second largest economy expanded by 0.5% in real terms in the last three months of 2002, marking four straight quarters of growth since Japan emerged from its worst post-war slump.
That was much better than the average forecast in a Reuters poll of a 0.3% contraction, and translated into annualised growth of 2%, but it still meant the economy slowed.
Japan’s GDP had grown by 0.7% in the previous quarter and 1.3% in the April–June period.
Merrill Lynch economist Jesper Koll called the latest figures a “one off wonder”, saying the economy was still floundering in deflation now stretching into a fourth year.
The GDP deflator, seen as the broadest measure of price changes in the economy, came in at minus 2.2% for October to December, reflecting relentless falls in consumer prices that have deterred spending by individuals and companies.
“The urgency to appoint a true deflation-fighter at the Bank of Japan is not going to disappear with this report,” Koll said. “Net exports, capital expenditure and consumption...are all pointing south.”
Nominal GDP, which does not account for deflation, fell 0.1% on the quarter, showing the economy is still struggling. Real GDP for all of 2002 grew a measly 0.3%.
The rise in GDP keeps Japan from the jaws of another recession, but pressure remains strong on the BoJ to take tougher action against deflation under a new governor that Prime Minister Junichiro Koizumi must select in the coming weeks.
The central bank, which has already cut rates to virtually zero, said yesterday it would keep its target volume for current account deposits parked with it at 15 trillion to 20 trillion yen (US$125bil–US$166bil).
Its only concession to calls for an easier policy was to say it could provide more funds to ensure markets remained stable around the end of the fiscal year next month.
Analysts say Japan, facing a host of structural problems from uncompetitive industries to a rapidly ageing population, needs more drastic reform to achieve higher growth but Koizumi’s plans for change have been bogged down by political opposition.
The GDP news pushed the yen higher and helped to lift the stock market’s Nikkei average to a three-week high. – Reuters
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