ASIA/PACIFIC Japan's GDP Report Gains Currency but Is Still Hard to Figure By Kaya Laterman Japan Correspondent 9/8/99 8:58 AM ET
TOKYO -- In Japan, GDP might as well stand for "giant deceptive pain."
The report, the year's second installment of which is to be revealed on Thursday, is notoriously volatile, the critics complain. Monthly and quarterly data don't jibe. Huge chunks of the report aren't made public, leaving the final version open to skepticism it's been manipulated by the government. And the sample populations in the consumption portion are so small that one or two big purchases by a single family can swing the entire yardstick.
Worst of all, they whine, the report is now the centerpiece of a stock market that is rising almost solely on hopes of economic growth. Since early June, when first-quarter GDP showed the Japanese economy expanding at a 1.9% clip over the previous quarter -- later revised to 2% -- the benchmark Nikkei has jumped about 7% as optimism has surged that the world's second-largest economy was finally emerging from a haze of slow or no growth. All that based on one mercurial number.
"Perception can be more important than reality if you want it to be," says Ron Napier, an economist at Napier Investment Advisers, who spent six years in Tokyo watching Japan for Salomon Brothers and doesn't put too much stock in the GDP report. "The monthly and quarterly data can often tell two different stories." Among the GDP report's problems:
*Surveys of single-person household consumption and income, important because of Japan's huge populations of students and elderly, aren't made public. That makes it impossible to forecast those portions of the report.
*The agricultural household survey, which covers about 3% of the population, is also kept in the vaults.
*The consumption portion is based on a relatively small sample of about 6,000 households. The U.S., by contrast, samples around 10 times that many households.
*Important indicators, like the capital expenditures report that was released on Tuesday, aren't released until a few days before the actual GDP data.
Already differences have cropped up. Overnight, big overseas securities houses like J.P. Morgan, Merrill Lynch and HSBC ratcheted back their GDP forecasts after Japan's capital expenditures for the second quarter were reported to have declined 13.4% from a year ago, worse than the fall of about 8% that had been expected.
Japan's economic pendulum has swung so widely this year that economists are warning investors, who have been stampeding into the market in the wake of the first-quarter number, not to place too much faith in one report. This time around estimates range from a 0.8% drop to a 0.3% rise.
"I hope the markets are not going to react to GDP as much as last time," says Hiroyuki Nonaka, a bond strategist at Sakura Securities, remembering that the first quarter's red-hot GDP report was preceded by consensus estimates calling for scant 0.1% growth.
The wild divergence of expectation and reality already has some market players wondering how they should best position themselves for the GDP report. Is there more risk to the upside? Or is the balance now tilting lower?
For now, the sentiment has swung lower, says Michael Hartnett, senior international economist at Merrill Lynch, who says Thursday's release may mark the peak in growth expectations. Merrill has already reduced its second-quarter GDP forecast from minus 0.5% to minus 1.3% on an annualized basis after Tuesday's capital expenditures figure. (That's a change from minus 0.1% to minus 0.4% on a quarter-on-quarter basis.)
While a poor number won't help stir up enthusiasm for investing in Japan, it also won't completely blow away the head of steam that's developed in the nation's recovering stock market. After all, investors are looking at companies, not just the statistics that swirl around them.
"The asset allocators of the world will likely react more to the headline numbers than the fund managers that actually go out and talk to companies," says Coen Kluyver, regional head of equities at ING Barings Japan. "Even if the market is disappointed, the magnitude of the disappointment will be small."
-- Senior writer Justin Lahart contributed to this story.