TOKYO (MNI) – Temporary factors boosted Japanese consumer spending
in the third quarter, leading to stronger-than-expected overall economic
growth, but these factors are likely to disappear in the current
quarter.

Slower consumer spending and export growth as now seen leading to a
contraction in GDP in the October-December quarter.

The real 0.9% quarter-on-quarter growth in Q3, an annualized rate
of +3.9%, was supported by 1.1% gain in private consumption (annualized
+4.7%), which pushed up the overall growth rate by 0.7 percentage point,
by far the most important contribution.

Q3 GDP posted the highest growth since +1.3% q/q marked in
April-June 2009.

Of the domestic final consumption expenditure of households (+1.1%
q/q, +4.6% annualized), durable goods spending surged by 11.1% q/q, or
an annualized 52.5%, the first q/q growth in two quarters after -1.6% in
April-June. Consumer durable goods spending contributed 0.6 point to Q3
GDP, or two-thirds of total growth for the quarter.

The rise was consumer durable spending was led by car purchases, as
consumers rushed to dealerships before the government ended its subsidy
program for buying low-emission vehicles in September. At the same time,
the government’s reward program for purchases of greener consumer
electronics continued to support sales of TVs and air conditioners,
particularly amid record high temperatures triggered by heat waves.

Spending on non-durable goods rose 0.6% q/q in Q3 vs. +0.5% in Q2,
reflecting unusually high demand for cigarettes before the tobacco tax
hike that took place Oct. 1

“Spending on automobiles and tobacco reflects rush purchases, which
tend to cause sharp fluctuations (in overall growth),” Kingo Toyoda,
director of the Department of National Accounts at the Cabinet Office,
told reporters.

He declined to provide any forecasts for October-December.

The latest monthly survey by the Cabinet Office’s Economic Planning
Association released last week showed that economists have revised down
their forecasts for Japan’s economic growth for this fiscal year and
fiscal 2011 while are projecting that prices in fiscal 2011 and 2012 may
not rise as much as expected earlier.

The economists polled expect on average a 0.88% contraction in
annualized GDP in the final quarter of 2010, four times their previous
forecast of a 0.21% drop. They also revised down their GDP outlook for
the first quarter of 2011 to +1.00% from +1.16%.

In Q3, net exports (exports minus imports) made hardly any
contribution to GDP growth — only +0.02 percentage point — as export
growth continued to slow to +2.4% q/q in July-September from +5.6% in
April-June and +7.0% in January-March.

The net export contribution was the worst since a negative 0.9
percentage point contribution in January-March 2009.

“The sharp appreciation of the yen squeezed the value of both
exports and imports,” said Toyoda. “The drop in Asian exports led the
slowdown in overall exports.”

On a customs-cleared basis, the volume of Japanese exports to Asia
fell 2.7% q/q in Q3 while shipments to the U.S. rose 6.2% and those to
the European Union gained 2.0%.

Imports rose 2.7% q/q in Q3, slowing from +4.0% in Q2.

Exports still posted the sixth consecutive quarterly gain, with
Q3’s 2.4% growth led by construction and other industrial machinery,
while imports marked the fifth straight q/q rise, with crude oil and
liquefied natural gas as well as TVs and air conditioners topping the
list.

The Cabinet Office estimates that through the end of September,
Japan’s GDP stood at $3.9674 trillion, still slightly higher than
China’s total output at $3.9468 trillion.

While noting that it is not accurate to compare two economies in
any particular quarter of a year, Toyoda said that in the July-September
quarter alone, China’s GDP at $1.4154 trillion was 3.1% higher than
Japan’s $1.3719 trillion.

These estimates were based on the average interbank spot dollar/yen
rate of Y85.857 for Q3, Y92.013 for Q2 and Y90.653 for Q1, and the IMF
data on dollar/yuan of CNY6.770 for all of the periods.

msato@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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