Japan Economy Grows 1.3%, Less Than First Estimated

Dec. 9 (Bloomberg) -- Japan’s economy expanded less than a third of the pace initially reported in the three months to September as companies slashed spending.

Gross domestic product rose at an annual 1.3 percent pace, slower than the 4.8 percent reported in preliminary figures last month, the Cabinet Office said today in Tokyo. The revision was deeper than the predictions of all but one of the 17 economists surveyed by Bloomberg News.

Stocks fell after the report underscored concern about the sustainability of a recovery that is under threat from deflation and a rising yen. Prime Minister Yukio Hatoyama unveiled a 7.2 trillion yen ($81 billion) stimulus package yesterday, the first for his Cabinet, to prop up the recovery.

“These numbers were weak,” Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “The stimulus will have a positive effect on the economy. But it’s not, in any way, enough to offset how steeply third quarter GDP was revised.”

The yen traded at 88.41 per dollar at 10:46 a.m. in Tokyo from 88.40 before the report. The currency has weakened since climbing to a 14-year high of 84.83 per dollar on Nov. 27. The Nikkei 225 Stock Average slid 1.3 percent led by Honda Motor Co. and Mizuho Financial Group Inc.

Today’s report added to evidence that falling prices are taking hold in the economy. In nominal terms the economy shrank 0.9 percent last quarter, compared with the government’s initial prediction for a 0.1 percent contraction. The GDP deflator, the broadest indicator of price declines, slid 0.5 percent. The gauge has only risen twice in the past decade.

Investment by companies drove the downward revision in last quarter’s growth. Capital spending fell 2.8 percent in the three months through September from the previous quarter. That compares with the 1.6 percent increase reported last month.

Slower Growth

The economy expanded 0.3 percent in the third quarter from the previous three months, the Cabinet Office said, slower than the 1.2 percent first reported. The cuts in both quarterly and annualized growth were the biggest since the survey was introduced in 2002, the government said.

“Japan’s economy isn’t in good shape and the outlook is cloudy,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. in Tokyo. “In the case of Japan, a crisis happens once in five years, not once in 100 years, so companies get scared of increasing business investment.”

Consumer spending, which makes up about 60 percent of the economy, climbed 0.9 percent, compared with a 0.7 percent gain initially reported. Exports increased 6.5 percent from the previous quarter, compared with the 6.4 percent first published.

Some exporters are scaling back their spending plans as the yen’s rise to a 14-year high threatens their profits and market share.

Toyota Motor Corp., Japan’s biggest automaker, aims to cut capital investment by 70 billion yen from its initial plans for the year ending March, the most among major companies, a Nikkei Inc. survey showed on Nov. 30.

Sony Corp., forecasting its first consecutive annual loss since its listing in 1958, said last month that it will eliminate 250 jobs at its information devices unit to reduce costs. The company will close down a factory in Miyagi Prefecture making magnetic heads and transfer some of its touch- panel production to China.

Falling Prices

Falling prices have been squeezing profit at home, prompting the government to declare last month that the country is back in deflation and push the Bank of Japan to do more to spur the economy. The central bank released a 10 trillion yen credit program last week, a move that Deputy Prime Minister Naoto Kan said yesterday had a “considerable impact” on weakening the yen.

“Even though companies are trying to secure profits by reducing costs, they continue to struggle to increase sales amid deflation,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo. “While the nation may fall into an economic lull early next year, it will take time before employment returns to a full-fledged recovery, even as the government’s job measures serve as a safety net.”

Yesterday’s stimulus includes employment subsidies, loan guarantees and incentives to buy energy-efficient products. Japan has compiled four spending packages since September 2008 totaling more than 29 trillion yen.

Avert Recession

Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo, said Hatoyama’s plan will probably ensure Japan averts another recession next year while failing to combat deflation.

Demand from Asia will be enough to sustain the export-led recovery, according to economist Ryutaro Kono.

“The likelihood of a double-dip recession may be limited thanks largely to the solid recovery in China and the other emerging economies of Asia,” said Kono, chief economist at BNP Paribas in Tokyo.

Exports fell at the slowest pace in a year in October, the Finance Ministry said yesterday.

Some companies are expanding in China to benefit from rising demand in the world’s fastest-growing major economy. Suzuki Motor Corp., Japan’s third-largest motorcycle maker, said on Dec. 1 that it will start operating a motorcycle factory in China in the first half of 2010 after a one-year delay.