Bloomberg News

Japan’s Economy Grew Less Than Forecast in the Second Quarter

August 12, 2012

Japan’s Economy Grew Less Than Forecast in the Second Quarter

An employee makes a phone call as another looks on at a sheet metal forming factory in the Ota ward of Tokyo, Japan. Photographer: Akio Kon/Bloomberg

Japan’s economy grew less than analysts forecast in the second quarter as Europe’s debt crisis and the yen’s gains weighed on exports, undermining a recovery from last year’s earthquake.

Gross domestic product rose an annualized 1.4 percent in the three months through June, compared with a revised 5.5 percent expansion in the first quarter, the Cabinet Office said in Tokyo today. The median forecast of 24 economists surveyed by Bloomberg News was for 2.3 percent growth.

The data increases the risk that growth in the world’s third-largest economy will slow further as global demand cools just as government spending at home that has been underpinning the expansion wanes. The yen’s advance against the dollar is also eroding the value of overseas earnings, with exporters such as Sony Corp. (6758) and Canon Inc. (7751) cutting profit forecasts in the past month.

“There’s a high chance that Japan’s economy will go into a pronounced slowing trend from the July-September period,” Mikihiro Matsuoka, chief economist at Deutsche Securities Inc. in Tokyo, said before the report. “Reconstruction demand will likely peak out later in the year” and export growth will be slow on weak global demand, he said.

Pressure may rise on policy makers to consider a supplementary budget and monetary stimulus to shore up domestic demand as Prime Minister Yoshihiko Noda pushed a sales-tax increase through the Diet last week. Finance Minister Jun Azumi said last month the government would weigh whether more spending is necessary after examining today’s growth report.

Profit Forecast

Sony cut its full-year profit forecast on Aug. 2 after gains in the yen eroded overseas earnings and sales of consumer electronics weakened. Canon, the world’s largest camera maker, also last month cut its full-year profit forecast because of a stronger yen and expectations for weaker growth in the U.S., Europe and China. Sony and Canon get about 70 percent and 80 percent of sales revenue outside Japan, respectively.

Government incentives for households to purchase fuel- efficient cars have been supporting consumer spending, which accounts for more than half of the economy. Mizuho Securities Co. expects the program to expire this month, which may increase the nation’s reliance on overseas demand for growth. Noda has also budgeted 19 trillion yen ($243 billion) for rebuilding from last year’s earthquake and tsunami.

The Bank of Japan refrained from easing policy at a board meeting last week. Central banks around the world have been supporting their economies as Europe’s woes deepen. The Philippines unexpectedly cut interest rates a third time this year to a record low on July 26, and the U.S. Federal Reserve said on Aug. 1 that it will pump fresh stimulus if necessary.

“The downward risks to exports may grow in the third and fourth quarters relative to the BOJ’s outlook, prompting the central bank to cut their growth forecast and apply more easing in October,” said Yoshimasa Maruyama, chief economist at Itochu Corp. (8001) in Tokyo. “There’s a chance that the government will compile an extra budget by the end of the year to support the economy before an increase in the sales tax.”

To contact the reporter on this story: Keiko Ujikane in Tokyo at

To contact the editor responsible for this story: Scott Lanman at

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