The sun rises as Japan's GDP growth gains pace

TheAge.com.au ^ | February 18th, 2006 | Lily Nonomiya

[Termite_Commander]

JAPAN'S economy grew at more than three times the pace of both the US and Europe in the fourth quarter as consumer spending surged.

The world's second-largest economy expanded at an annual 5.5 per cent pace in the three months to December 31, the Cabinet Office said in Tokyo yesterday.

Japanese consumer confidence is at a 15-year high as companies hire, job prospects improve and wages rise, propelling the economy to its longest post-war expansion. The Bank of Japan may take the consumer-demand revival into account when deciding when to end its five-year deflation-fighting policy, according to Jim O'Neill, chief economist of Goldman Sachs Group.

"The ability for consumers to accelerate their purchases is high," Mr O'Neill said in a report. "Stronger-than-anticipated demand could result in the BoJ changing their minds about keeping easy policies for too long."

The US economy grew at a 1.1 per cent annualised pace in the last quarter and Europe expanded by 0.3 per cent in the fourth quarter from the third. Japan's economy hasn't grown three times faster than the US and Europe since the fourth quarter of 2002.

The US and Europe buy more than a third of Japan's exports.

The Cabinet Office GDP report, combined with rising consumer prices, suggests that the Bank of Japan is getting closer to ending its five-year policy of pumping money into the economy and holding interest rates near zero.

Core consumer prices, the central bank's benchmark for conducting monetary policy, will show "clear gains" from January, Bank of Japan Governor Toshihiko Fukui said earlier this month. The bank next meets on March 8 and 9.

Capital and consumer spending, which together make up more than 60 per cent of the economy, have helped the economy into its 48th month of recovery from recession. The recovery will be the longest since 1945 if it keeps expanding until the end of this year. The longest post-war recovery in Japan lasted for 57 months between November 1965 and July 1970.

"Personal consumption and capital spending are leading the economy into an autonomous and sustainable recovery," said Takehiro Sato, an economist at Morgan Stanley in Tokyo. Japan "is in a virtuous cycle where it is enjoying excellent growth and stable prices".

An end to more than seven years of falling prices as the economy grows is encouraging consumers and companies to take on more credit, halting an eight-year slide in bank lending in January. The first gain in wages in five years and rising stock prices are bolstering the wealth of consumers.

[Wiz]

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