Japan's GDP shows surprising strength


The June quarter marked the first rise in more than a year, after the first quarter was recast as a slight decline

By Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan -- Japan's economy grew a surprisingly strong 0.5 percent for the April-June quarter, the Cabinet Office stated, thanks to a surge in exports and demand.

Economists had been expecting a 0.2 percent rise.

But those looking for recovery in the world's second-largest economy will be concerned that growth for the March quarter was revised down, to a minimal decline.

The economy was flat in the first quarter, the revision states, registering 0.0 percent and a slight, 0.1 percent drop when annualized.

It had first registered as 1.4 percent growth but was recast under new calculation methods that place more emphasis on industrial output and retail sales.

First growth in five quarters

That means the figures for the June quarter mark the first growth in five quarters. The second-quarter growth registers as an annualized growth rate of 1.9 percent.

Domestic demand posted a 0.2 percent rise from the first quarter, the first time in five quarters that it has registered a gain.


The yen surged into the 115 range against the U.S. dollar during the second quarter but has since eased a little

Consumption gained again, up 0.3 percent, but the rate of growth has slowed. That suggests Japan's recovery will remain tentative.

The jobless rate remains near a record. Separate figures showed that it remained at 5.4 percent for July. The total number of people out of work rose 220,000 to 3.52 million.

That's just off the record 5.5 percent it set in December.

The GDP figures do show that exports, typically the vanguard of any rebound, rose 5.8 percent for the second quarter, over the first.

That's despite the strength of the yen, which surged to 115 to the U.S. dollar. It has since fallen back to around 118.

Government consumption up

The currency strengthened a little on the stronger-than-expected figures, but is now steady at 118.13 to the U.S. dollar in morning trade having closed at 118.22 in New York.

The stock market took little joy from the growth. The Nikkei is down 0.99 percent at 9,524.78 in late morning trade, with the Topix off 0.66 percent.

Japan's government consumption also boosted the second-quarter GDP figures, with a 0.8 percent leap from the quarter before.

But government's capital spending fell 0.7 percent, as the administration of Junichiro Koizumi continues to trim public spending on roads and other large projects.

Investment bank CLSA predicts that Japan will slump back into recession later this year, with economies such as Korea, China and India leading growth prospects in Asia (full story).

Gross domestic product is the broadest measure of an economy, measuring goods and services produced.

Separate figures showed that retail sales fell 5.3 percent for July in Japan, the 16th straight month of declines.