Japan July-Sept. GDP Contraction Deepens to 1.8 Pct

Tokyo, Dec. 9 (Jiji Press)--The Japanese economy shrank at a
revised annual rate of 1.8 pct in July-September in price-adjusted real terms, much faster than the previously estimated 0.4 pct drop, weighed down by sluggish capital investment and a fall in inventories, a government report showed Tuesday.

In the second quarter of fiscal 2008, Japan's seasonally adjusted
real gross domestic product fell a revised 0.5 pct from three months before,
against a 0.1 pct decrease in the preliminary report released on Nov. 17,
the Cabinet Office reported.
The revised readings turned out worse than the average forecasts of
a 0.3 pct quarter-on-quarter fall and an annualized decline of 1.0 pct among
10 economic research institutions.
Japan's GDP thus contracted for the second straight quarter after a
3.7 pct annualized fall in April-June, indicating a rapid downturn of the
nation's economy.
The Japanese economy had not posted negative quarter-on-quarter
growth consecutively since 2001, when it shrank for three straight quarters
from April-June.
In nominal terms, or before adjustment for price changes, Japan's
July-September GDP shrank a revised 0.7 pct from the previous quarter,
compared with a preliminary drop of 0.5 pct, for an annualized decline of
2.7 pct, against a preliminary 2.1 pct fall.
Among key GDP components, the real-term rate of decline in
corporate capital spending was revised to 2.0 pct from 1.7 pct, based on
dismal business investment data released by the Finance Ministry last
Thursday.
"Due to the worsening environment for fundraising, companies,
seeking to keep cash on hand, tend to refrain from making investment that is
not urgent," said Tetsuya Miura, strategist at Shinko Securities Co.
Analysts also observe that a decrease in private-sector inventories
was a major reason for the downward revision of the July-September GDP.
In the preliminary report, private inventory contributed to pushing
up the real GDP by 0.0 percentage point. But in the revised estimate, it
became a 0.2-point negative contributor, reflecting companies'
inventory-adjustment efforts.
Personal consumption, which accounts for more than half of the
country's GDP, grew 0.3 pct, unchanged from the preliminary reading. Housing
investment dropped a revised 3.9 pct, against a preliminary 4.0 pct decline.
Exports increased 0.8 pct, faster than a 0.7 pct rise, and imports
went up 2.3 pct, against 1.9 pct.
Domestic demand made a negative contribution of 0.3 point to the
July-September GDP growth, a reversal from a positive contribution of 0.1
point in the preliminary report.
External demand, or net exports, pushed down the Japanese economy
by 0.2 point, unchanged from the preliminary reading.
Looking ahead, many analysts expect the Japanese economy to
continue flagging.
Taro Saito, an economist at the NLI Research Institute, said
Japan's GDP is likely to continue posting clear negative growth in
October-December and January-March. "With exports falling sharply and
capital spending showing no sign of recovery, the Japanese corporate sector
is expected to remain in a slump for the time being" Saito said.
"The revised GDP readings did not come as a surprise because it was
already clear from the preliminary report that domestic private-sector
demand was slack," said Takeshi Minami, economist at the Norinchukin
Research Institute.
"The Japanese economy is in an extremely severe situation," Minami
said, predicting that the GDP growth rate for fiscal 2008, which ends in
March 2009, will be close to minus 1.0 pct. On a fiscal year basis, Japan's
GDP has been posting positive growth for six straight years through fiscal
2007.
For achieving positive growth in fiscal 2008, Japan's GDP needs
term-on-term rises of at least 0.51 pct in the final two quarters.