Ashley Seager Wednesday May 19, 2004 The Guardian
The Japanese economy, the world's second largest, grew unexpectedly rapidly in the first quarter of the year and again outpaced the United States.
Official data out yesterday showed Japan grew 1.4% on the quarter or 5.6% on an annualised basis. That was a lot stronger than the 3.6% analysts had pencilled in. The US, by contrast, managed annualised growth of 4.2% and 4.1% respectively in the last two quarters.
"This shows that the Japanese economy continues to recover in a stable manner," economics minister Heizo Takenaka said.
The bullish numbers helped the Nikkei stock index, which had tumbled nearly 3% to a three-month low on Monday on fears over record oil prices, to regain nearly 2% of its losses to close at 10,711. A retreat in oil prices back towards $41 a barrel also helped.
The figures showed that the initial stimulus - exports to China and the related investment - was now spreading to the rest of the Japanese economy, with consumer spending and investment accounting for the bulk of the rise.
"The interesting thing is that the growth is now largely being driven domestically and the corporate sector is in great shape," said Julian Jessop, chief international economist of the consultancy Capital Economics.
The data follow recent figures showing unemployment in Japan down to 4.7% in March - the same as Britain's - from 5.4% a year earlier.
Analysts were split on whether the figures represented the emergence of the Japanese economy from more than 10 years of slump or was another false dawn.
Mr Jessop is convinced that Japan has turned the corner. "The revival in domestic demand suggests that the kickstart from China has already done its job and that Japan can weather a regional slowdown," he said.
But others were worried that rising oil prices and the likelihood of higher interest rates in the US could hurt Japan.
A recent fall in the value of the yen to an eight-month low against the dollar could be harmful to Japan as it is almost totally dependent on imported oil.
"We expect growth to slow down in the next quarter as various negative factors - like record high oil prices, a fall in stock prices and possible interest rate hikes in the US and China - will surface, weighing on the economy," said Kenji Arata, analyst at Informa Global Markets.