— 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 4.1% from
the 3.9% rise originally reported, reflecting a solid gain in business
investment as seen from the demand side, according to an updated survey
of 23 economists conducted by Market News International.

The median forecast was slightly lower than +4.2% seen in the
initial MNI survey of five economists released on Thursday.

The broader survey showed economists agreed with the results of the
preliminary survey that private-sector inventories, another major factor
in calculating revisions to GDP, are expected to have a fairly neutral
impact.

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 on Thursday 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 had 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.

Moreover, when the Cabinet Office releases GDP data next week, it
will also revise fiscal 2009 GDP, which contracted 1.8% y/y.

“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.

Many economists forecast a contraction in Q4 GDP in a payback for
consumers’ rush Q3 buying of automobiles ahead of the expiration of
government purchase subsidies, and cigarettes ahead of the tax increase
that took effect October 1.

However, Ryutaro Kono, chief economist at BNP Paribas Securities,
said, “A contraction in the fourth quarter GDP may be smaller than
originally forecast, as last-minute buying of (greener) consumer
electronics ahead of Dec. 1, when the government halved reward program
points, turned out to be much more significant than expected.”

“A contraction in Q4 GDP may be avoided,” said Kono.

Some large electronics retail stores reported long lines of
customers on Nov. 30, who sought to take advantage of full reward points
offered by the government for buying flat-screen TVs,
air conditioners/heaters and refrigerators that require less power to
operate.

The program started in May 2009 and is scheduled to end on March
31, 2011. It is aimed at boosting consumer spending, conserving energy
and helping households convert to digital TVs from analog receivers.

Shipments of household electronic goods rose 50.2% on year in
October, accelerating from +26.2% in September, +21.4% in August and
+10.0% in July, according to Japan Electronics and Information
Technology Industries Association. In particular, those of flat-screen
TVs surged 143.7%, hitting a record monthly high of 2.8 million units.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4838 **

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