Japan's Economy Slows But Still Posts Gains

Japan's economic growth slowed to 0.4% in the three months to September as domestic demand cooled but analysts believe the recovery remains intact after a fourth straight positive quarter. Growth eased from the 0.8% pace of the second quarter, a preliminary government estimate showed, but the outcome was still better than forecasts for 0.3% and 1.1% year-on-year.

On an annualized basis, gross domestic product (GDP) grew 1.7% in the third quarter, after 3.3% in the second and 4.9% in the first.

Despite the headline slowdown, analysts said Asia's largest economy remains on track to recovery after a decade-long slump and momentum should continue into the fourth quarter. "Growth was slightly better than we had expected, chiefly due to resilient domestic demand such as corporate capital investment and consumption," said Atsushi Takeda, chief economist at the Mizuho Research Institute. "Growth in exports is on track as well," he added. Takeda expects the economy will post a similar growth rate in the fourth quarter of this year given other positive data on investment, corporate earnings and household income.

In the quarter through September, private consumption, which accounts for about 55% of the economy, gained 0.3%, contributing 0.2 percentage points to growth. In the second quarter it had risen 0.7%.

Exports picked up by 2.7%, after 3.1% in the previous quarter.

The Bank of Japan and the government have both recently declared that the economy has moved out of a soft patch and there are signs that a return to inflation after almost eight years of damaging falls in consumer prices. Additionally the Bank of Japan says an end to deflation is near and the central bank is expected to halt its ultra-expansionary monetary policy of flooding the financial system with cash sometime next year.

Copyright Agence France-Presse, 2005

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