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Japan surprises with GDP growth
By Geoff Hiscock
TOKYO, Japan (CNN) -- Japan's economy grew a better than expected 0.7 percent in the three months to September, government figures released Wednesday show. That translates into an annualized growth rate of 3.0 percent, compared with 2.6 percent in the previous quarter to June. But an export slowdown still threatens to derail a fragile recovery in the world's second largest economy. A decline in U.S. consumer demand for Japanese products such as cars and electronics goods is hurting exports, as is a strengthening of the yen against the dollar throughout 2002. The yen stands at 119.73 to the dollar in early Asian trade Wednesday, having broken through the 120 mark last Friday. Some analysts say it could revisit the 115 level it touched in July. On the Tokyo stock market, the Nikkei 225 average is showing a slight rise of about 0.3 percent, with carmakers Toyota and Nissan among the gainers. Host of problems
Along with the export decline, Japan is beset by a host of other problems as it struggles to throw off recession. Deflation remains a long-term fear, the jobless rate remains near record levels and the administration of Prime Minister Junichiro Koizumi has failed to deliver breakthrough reforms on the vexed issue of banks' non-performing loans. Economists say the momentum for policy change in Japan has stalled. IMA Asia noted in its November outlook that significant progress on Japanese banks' bad loans was "unlikely without a wholesale change in bank management and major staff cuts". Heizo Takenaka, the Economy Minister and Financial Services Minister appointed by Koizumi to tackle the banking problem, said in Tokyo on Tuesday that future rescues of banks would need to be accompanied by sackings of top executives. Stock prices for Japan's four big banks -- Mizuho, UFJ, Sumitomo Mitsui and Mitsubishi Tokyo -- have been battered this year as they struggle with bad loans of as much as $400 billion. But Merrill Lynch chief economist in Tokyo, Jesper Koll, told CNN Wednesday that consumer confidence was actually rising and consumers were spending. He said while it was clear that financial markets were in a "severe adjustment process," the average Japan consumer did not own any stocks or bonds. Isolated from markets"The Japanese consumer is very isolated from financial market dynamics," Koll said, noting that there was a good chance consumers would continue to support the domestic economy. For that reason, he said, Japan's economy was in stagnation, rather than in crisis. Koll said September probably marked the peak of the cycle and Japan could probably expect a large-scale corporate tax cut to offset the fall in business investment. The September quarter rise in Japan's gross domestic product, the broadest measure of goods and services, was better than a consensus forecast of a 0.4 percent in a Reuters poll of economists. It follows a gain of 1.0 percent in the previous three months, revised up by the government from 0.6 percent. The figure for the January-March quarter was also revised up to 0.2 percent growth from flat. Consumption upPrivate consumption, the largest sector of the economy, grew 0.8 percent during the quarter, as consumers showed some resilience to near record-high unemployment and persistent deflation. Richard Jerram, Tokyo-based chief economist for ING, said earlier this week that Japan's net exports in the third quarter would be negative, in part due to the effect of the stronger yen. "Exports seem to be stalling and there are some signs this is already being felt by industrial production," Jerram said in a research note. Japan's lackluster growth contrasts sharply with that being seen in China, where a senior official said on Sunday that the country was headed for 8 percent growth this year. "This year, China's GDP is expected to exceed 10 trillion yuan ($1.2 trillion), an increase of some 8 percent compared with last year," Zeng Peiyan, head of the State Development Planning Commission, said in Beijing. (Full story) Reuters contributed to this report.
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