Japan GDP Grows at 2.6 Pct Annual Rate in April-June

Tokyo, Aug. 12 (Jiji Press)--Japan's seasonally adjusted gross domestic product grew at an annual rate of 2.6 pct in April-June in price-adjusted real terms, with a 0.6 pct quarter-on-quarter rise, up for the third straight quarter, the Cabinet Office said in a preliminary report Monday. The annualized growth rate, however, was lower than the median forecast of 3.5 pct by 11 economic research institutes polled by Jiji Press and the January-March quarter's 3.8 pct growth. In nominal terms, Japan's GDP in the first quarter of fiscal 2013 expanded 0.7 pct quarter on quarter for an annualized rise of 2.9 pct. The nominal growth exceeding the real growth indicates signs of Japan's exit from deflation. The April-June GDP data will be one of the most important indicators referred to by Prime Minister Shinzo Abe when he makes a final decision this autumn on whether to raise the consumption tax rate to 8 pct from the current 5 pct next April as scheduled. The tax hike law enacted last year requires an "upturn in economic conditions" for the government to go ahead with the tax hike, which will be followed by another hike to 10 pct in October 2015. Speaking to reporters after the GDP data was released, Abe said the economy has been picking up steadily but declined to comment on the planned tax hike. "We will continue to put all our efforts into economic policy," he said. Abe appears to be wary of the risk that the tax hike would cause the economy to slip off the track to hamper his administration's top-priority efforts to pull the country out of decades-long deflation. As the preliminary April-June growth was slower than expected, the prime minister apparently intends to decide carefully after taking into account revised GDP data for the quarter due out in September and other economic indicators. Meanwhile, Economic and Fiscal Policy Minister Akira Amari said in a separate news conference that the latest GDP that "the Abe government's economic measures are steadily having positive effects." The current consensus among private-sector economists is that Japan's economy being on a recovery track warrants the tax hike but that the economy is expected to fall into negative growth in April-June 2014 on the tax hike's impact. "The latest data fell moderately short of market expectations, making it difficult to decide whether to raise the tax without seeing revised GDP data due out on Sept. 9," said Yuji Shimanaka, head of the business cycle research body of Mitsubishi UFJ Morgan Stanley Securities Co. Later this month, the government's Council on Economic and Fiscal Policy will hold hearings with some 50 experts on possible negative effects of the tax hike and measures to offset them. "We will do whatever we can, including the compilation of an extra budget and tax reform," a senior Finance Ministry official said. Among GDP components, private consumption, which accounts for about 60 pct of Japan's GDP, in April-June grew 0.8 pct from the previous quarter in real terms thanks to brisk demand for a wide range of products and services, including air conditioners, clothing and financial services, on better consumer sentiment. Public-sector investment expanded 1.8 pct, boosted by the full execution of a supplementary budget for fiscal 2012. Exports were up 3.0 pct on the yen's depreciation against other major currencies as well as pickups in economies abroad, while imports were up 1.5 pct. Meanwhile, housing investment fell 0.2 pct on higher construction material prices. Corporate capital spending dipped 0.1 pct, reflecting a drop in investment by automakers and shipbuilders and falling for the sixth consecutive quarter. Domestic demand made a 0.5-percentage-point positive contribution to the GDP growth, while external demand made a 0.2-point positive contribution. The GDP deflator, a price trend gauge, rose 0.1 pct from the previous quarter, marking the first positive growth in three quarters, but fell 0.3 pct from a year earlier. END