— See Separate Table For Details of Individual Forecasts

TOKYO (MNI) – Japan’s robust economic growth in the third quarter
is likely to be revised up slightly to an annualized rate of 4.2% from
the 3.9% rise originally reported, reflecting a solid gain in business
investment as seen from the demand side, according to a preliminary
survey of economists by Market News International.

Private-sector inventories, another major factor in calculating
revisions to GDP, are expected to have a fairly neutral impact this
time.

The Cabinet Office will release revised (second preliminary) GDP
data for July-September on Thursday, Dec. 9 at 0850 JST (2350 GMT on
Wednesday).

The revised forecasts by economists contacted by MNI reflect the
results of a quarterly government survey released earlier Friday that
showed that combined capital investment by Japanese non-financial
companies rose 5.0% in the third quarter of 2010 from a year earlier,
the first increase in 14 quarters.

Excluding software, business investment in equipment rose 4.8% from
a year before in Q3 — also the first gain in 14 quarters — after
falling 1.5% in Q2, according to the quarterly survey by the Ministry of
Finance.

The 4.8% rise was below the MNI survey median for a 6.0% gain,
though economists agreed that an above-2% y/y rise in Q3 capital
spending in the MOF’s survey would lead to an upward revision to capex
in the revised GDP data.

On a seasonally adjusted, quarter-over-quarter basis, capex
excluding spending on software rose 1.9% in July-September, after a
downwardly revised 5.3% rise in Q2 (previously +6.4%).

The Cabinet Office uses this key piece of demand-side data to
calculate revisions to first preliminary GDP, which is based only on
supply side capex information.

Preliminary data released last month showed that Japan’s economy
expanded a real 0.9% in July-September from the previous quarter (an
annualized 3.9%), the fourth consecutive q/q rise, due mainly to strong
personal consumption.

It followed a revised 0.4% q/q growth rate, or an annualized 1.5%,
in April-June.

Susumu Kato, chief economist at Credit Agricole, expects the Q3 GDP
growth to be revised up to +1.0% q/q, or an annualized +4.2%, due mainly
to an upward revision to private capital spending.

Capex will be revised up to +1.4% q/q from a preliminary +0.8%
while private inventories are unlikely to be changed much, he forecast.

“The revised GDP will show Japan’s economy is relatively sound
among the Group of Seven Industrialized nations,” said Kato.

Tatsushi Shikano, senior economist at Business Cycle Research at
Mitsubishi UFJ Morgan Stanley Securities, agreed: “The recovery trend of
capital investment remains unchanged.”

Shikano projected that Q3 GDP will be revised up to +1.1% q/q, or
an annualized +4.4%.

Meanwhile, economists polled by MNI forecast private inventories’
positive contribution to Q3 GDP growth will be +0.1 percentage point,
unchanged from the preliminary reading.

However, forecasting GDP is not an easy job, since the Cabinet
Office revises seasonal adjustments to past figures each time it
releases new GDP data, whether preliminary or revised series.

“Those (seasonal adjustment) revisions may have a major impact on
revised Q3 GDP,” said Akiyoshi Takumori, chief economist at Sumitomo
Mitsui Asset Management.

On the downside, Takeshi Minami, chief economist at Norinchukin
Research Institute, warned that capital investment that was originally
planned in the second half of this fiscal year might be pushed back
until fiscal 2011 in light of slowing export growth and sluggish
domestic consumption.

MNI will release the results of a full survey of economists’
forecasts for revised Q3 GDP in coming days.

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

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