Japan’s Q1 growth revised to 3.9% on increased capex

Japan’s gross domestic product (GDP) expanded much more vigorously than previously indicated during the first quarter of this year, it was announced on Monday, suggesting that the tide may finally be turning for the better in the world’s third largest economy, according to some analysts.

An upgrading of the contribution to growth made by corporate capital investment in the first quarter raised the official measure of growth to an annualised real 3.9 per cent compared with the preceding quarter from an initially estimated 2.4 per cent.

Optimism was tempered, however, by reports that GDP growth may have slackened again since the end of March, while the yen’s continuing plunge against the US dollar and other currencies has raised concerns over rising import costs and over a possible backlash in currency markets.

The first-quarter jump in corporate capital spending appears to reflect the fact that some firms are “re-shoring” industrial production back to Japan from investment destinations such as China in the light of the yen’s sharp drop and the consequent fall in Japanese export prices, some analysts said.

But the flip side of this is that the costs of imported raw materials and components or assemblies is rising. At the same time, the yen’s fall to a 13-year low of around 125.3 to the US dollar has spurred fears of some form of retaliation by Japan’s key trading partners.

Business investment gained 2.7 per cent in the first quarter, owing mainly to increased spending in the retail, electronics and service sectors, compared with a 0.4 per cent rise in the preliminary report.

An average projection by 41 private sector economists, released last week by the Japan Center for Economic Research, showed that GDP growth is expected to slow to an annualised real 1.7 per cent in the three months to the end of June. In nominal terms, before adjustment for price changes, Japan’s GDP jumped by an annualised 9.4 per cent in the first quarter – the fastest rate of growth since the second quarter of 1990.