Japan economic growth slows on weak exports

Japan’s economic growth has slowed down in the second quarter amid weaker exports and subdued domestic consumer spending.

Gross domestic product grew by 0.3 per cent in the quarter from the previous three months, the cabinet office said on Monday. But it is down by 1 per cent compared to the first quarter during January-March.

The data came in significantly lower than market expectations for a 0.7 per cent increase, as exports slowed in the wake of protracted crisis in Europe, and despite a ramp-up in government spending since the March 11 quake-triggered tsunami last year.

The economic growth translated into an annualised 1.4 per cent rise, below the market forecast for 2.7 per cent increase.

Exports of goods and services rose 1.2 per cent during the April-June period, slower than 3.4 per cent seen in the previous quarter, the cabinet office said.

Although the pace of growth dropped sharply from a revised 5.5 per cent in the previous quarter, the economics minister, Motohisa Furukawa, struck an upbeat tone, saying in a statement that the economy “continues in an uptrend, led by domestic demand”.

“With the employment and earnings environment expected to improve further… the economy is expected to maintain moderate growth for the July-September period and later,” he said.

However, analysts have sounded concerns as the Chinese economy, which is a key driver of regional growth, suffers a deceleration while stimulus programmes at home begin to expire.

“In general, we can’t see any strength in the Japanese economy, which was mainly sustained by government fiscal measures,” said Hideki Matsumura, senior economist at Japan Research Institute.

Strong currency

Japanese shares ended flat on Monday following weaker-than-expected growth data while dealers await further easing steps from international monetary authorities.

The Nikkei index at the Tokyo Stock Exchange fell 0.07 per cent to 8,885.15, but the Topix of all first section shares rose 0.02 per cent to 746.95.

Adding to the headwinds faced by the world’s number three economy is the strong yen, which has made the country’s exports less competitive in overseas markets, and costs for importing fuel to offset lost generation capacity from closed nuclear power plants have also mounted.

The government has taken a series of steps to spur growth, including offering incentives for fuel-efficient vehicle purchases and measures to rebuild the northern region hit by the deadly earthquake and tsunami.

Consumer spending makes up more than half of Japan’s economic activity.

After the March 11 disaster last year, many Japanese held back on spending and excursions, adding to damage from disruptions to manufacturing from the twin disasters in northeastern Japan, where many auto and electronics plants ground to a halt.