International | Aug 14 2006
By Chris Shaw
The economic growth rate in Japan declined in the three months to June 30, but the expert view is the result was actually encouraging given it was achieved on lower exports, suggesting the domestic side of the economy is continuing to strengthen.
Growth for the quarter was 0.2%, half the consensus forecast of an increase of 0.4% and down from 0.7% in the previous quarter. This puts the economy on course for annual growth of 0.8%, against previous expectations of an increase of closer to 2%.
One of the major contributors to the decline was a fall in exports, which was attributed to a slowing in the US economy, which is one of Japan’s major trading partners.
JP Morgan Securities Japan suggests the outcome is positive in the sense the economy was able to continue to expand despite lower exports, as it shows underlying strength in both domestic consumption and capital expenditure by businesses. The broker’s view is the slower growth was due to companies reducing stockpiles, suggesting a pick up in growth as stockpiles are subsequently rebuilt.
Goldman Sachs agrees, the broker suggesting the content of the growth achieved in the quarter was actually quite positive as it points to the sustainability of the domestic demand. This stronger consumer demand is a key going forward according to Standard Chartered Bank, as it is in contrast to recent figures that showed a decline in consumer confidence.
While growth should improve in coming months, the lower than expected outcome for the quarter means further increases in interest rates are likely to be delayed. In JP Morgan’s view, the Bank of Japan (BoJ) is unlikely to act prior to the release in October of its semi-annual outlook for the economy, which will give it additional time to assess the flow of data relating to the economy.
As a result, the yen fell after the quarterly growth figures were released, declining to more than 116 against the US dollar from around 115.50 previously.
