UPDATE 3-Japan economic growth slows in Q2, ups chance of new stimulus

by on August 13, 2012 2:00 am BST

Sun Aug 12, 2012 10:00pm EDT

* Q2 GDP +0.3 pct qtr/qtr vs f'cast +0.6 pct
    * Growth slows as consumption boost wanes
    * Consumption up 0.1 pct, external demand shaves off GDP
    * Japan Q2 annualised growth 1.4 pct vs U.S. growth of 1.5

    By Stanley White and Leika Kihara
    TOKYO, Aug 13 (Reuters) - Japan's economy expanded just 0.3
percent in April-June, half the pace expected, fuelling concerns
growth will continue to flag as a rebound in consumer spending
starts to lose momentum and Europe's debt crisis weighs on
global demand.
    The data provides further evidence of a global slowdown
raising expectations in financial markets that policymakers will
take action to lift their economies. The United States, Japan
and China have all reported weaker growth in the April-June
quarter compared with their previous-quarter figures.
    Japan's growth undershot expectations for a rise in gross
domestic product of 0.6 percent and was sharply lower than an
expansion in the previous quarter of 1.3 percent, a revision
from 1.2 percent reported initially, the Cabinet Office said.
    Financial markets showed a muted reaction to the data.
    "As domestic demand is losing momentum and exports will
likely weaken further due to Europe's debt trouble, there is a
possibility that Japan will go back into an economic lull in
July-September," said Yuichi Kodama, chief economist at Meiji
Yasuda Life Insurance in Tokyo.
    The data highlights the Bank of Japan's growing concern that
slowing exports will weigh on economic growth in the months
ahead, which could set the stage for additional monetary easing
in coming months.
    "Europe's sovereign debt crisis remains a major risk to
Japan and the global economy," said Tatsushi Shikano, senior
economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
    "The Bank of Japan will likely take a wait-and-see stance
but it could act again next month if financial turmoil and
further monetary easing by the U.S. Federal Reserve prompt a
spike in the yen, threatening Japanese exporters' earnings and
the economy's recovery prospects," Shikano said.
    Hiroshi Miyazaki, chief economist at Shinkin Asset
Management Co in Tokyo, also said that the impact on growth of
reconstruction work following last year's earthquake and tsunami
is waning.
    "There will still be public works spending for
reconstruction from last year's earthquake, but the gains won't
be as fast as they were in the first half of the year," Miyazaki
    The world's third-largest economy grew at an annualised rate
of 1.4 percent, less that the median forecast of 2.5 percent and
slightly off the 1.5 percent annualised pace of the United
States in the same quarter. The U.S. economy had expanded at a
2.0 percent pace in the January-March quarter.
    China's economy grew in the second quarter 7.6 percent from
a year earlier, down from 8.1 percent in the first quarter.
    "Japan's economy continues in an uptrend led by domestic
demand," Economics Minister Motohisa Furukawa said in a
statement issued after the data release.
    Growth in private consumption, which makes up about 60
percent of the economy, slowed to just 0.1 p ercent after
expanding 1.2 percent in the previous quarter. The reading was
also below a median estimate of 0.3 percent.
    External demand shaved 0.1 percentage point off GDP in the
second quarter, while domestic demand contributed 0.4 point, the
data showed.
    Japan's economy is expected to outperform most of its G7
peers this year helped by solid domestic demand, but analysts
have slashed forecasts for factory output as the slowdown in the
global economy becomes more pronounced. 
    A persistently strong yen is also a concern, because it can
weigh on corporate earnings and lead some firms to delay capital
    Several exporters, including electronics giant Sony Corp
 and carmaker Nissan Motor Corp, said their
April-June earnings took a hit from the strong yen.
    Nissan said the yen cut 25.7 billion yen ($328 million) off
its quarterly operating profit of 120.7 billion yen.
    The currency has become a safe haven during the euro zone
debt crisis, but members of the government and the central bank
worry that the strong yen will hurt business and consumer
    The Bank of Japan left monetary policy unchanged last week
but lowered its assessment of exports and factory output, a sign
it is ready to ease policy further if Japan's recovery prospects
are threatened.