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Japan''s economic growth picks up momentum in third quarter news
15 November 2006

Mumbai: Japan''s economy grew twice as fast as expected in the third quarter. Gross domestic product (GDP) in the world''s second-largest economy grew at an annualised two per cent in the three months ended September 30, against the second quarter growth rate of 1.5 per cent - revised upward from the earlier estimate of one per cent.

The news comes amidst speculation that the central bank may raise interest rates next month to cool surging corporate spending.

Toshihiko Fukui, governor of the Bank of Japan, had said last week that the central bank may have to act ``in advance'''' to prevent the lowest interest rates among major economies from triggering excessive capital investment. The news spurred gains in bond yields and the Japanese currency. The yen rose to 117.58 per dollar in Tokyo from 118.04 before the report. The yield on five-year notes rose eight basis points, the most in more than five months, to 1.24 per cent. The Nikkei 225 stock average reported the biggest gain in five weeks as the longest expansion since World War II increased profits of Japanese corporates.

Consumer spending, which accounts for more than half of the economy, fell 0.7 per cent, twice as much as the 0.3 per cent drop expected, amid a spell of bad weather that kept shoppers at home and as wages growth stalled. Some economists expect the central bank to delay an interest rate increase until January when it has more information on whether the increase in business spending has spurred employment and fed wages growth.

Japan''s consumer confidence was at its best in October as unemployment remained near an eight-year low, reports showed.

The Bank of Japan will conclude its two-day policy meeting on November 16, when it''s expected to leave rates at 0.25 per cent, according to a survey of economists. The bank''s subsequent meeting will conclude on December 19, four days after the publication of its Tankan business confidence survey.

Since the end of the quarter, data from Japan and overseas raised concern growth may ease. The US economy, Japan''s biggest export market, slowed to a 1.6 per cent annual rate in the third quarter, from 2.6 per cent in the second. The quarter- on-quarter expansion in the euro economy slowed more than forecast in the third quarter, expanding 0.5 per cent from 0.9 per cent in the prior three months, a report from the European Union''s statistics office showed.

In Japan, machinery orders, an indicator of spending plans, had their biggest drop on record in the third quarter and bank lending slowed for a third month in October. Yet, capital spending in the quarter surged 2.9 per cent, more than three times the 0.9 per cent gain expected.

Current account surplus in foreign trade added 0.4 percentage points to growth while inventories with companies in the quarter contributed 0.3-percentage point to growth.

The GDP figures are preliminary and revised figures for the third quarter are expected to be released on December 8.


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Japan''s economic growth picks up momentum in third quarter