Japan bounces back as exports drive growth

Economy expanded by 4.6 per cent in third quarter of 2009, official data confirms

Despite the well-publicised troubles at Toyota and the bankruptcy of Japan Air Lines, the wider Japanese economy is enjoying a sharp rebound.

According to the latest official figures, Japan's economy grew by 1.1 per cent in the last quarter of 2009 – well ahead of analysts' expectations and sharply up on the nil growth registered between July and September.

At an annualised equivalent rate of 4.6 per cent, the new figure is also well above trend, boosted by stronger export performance, capital spending and domestic consumer demand, which has long been the weak link in the Japanese economy. While growth at his sort of pace is probably unsustainable, a spokesman for the government said: "The risk of a double-dip recession has decreased a little."

The data also helped Japan to keep its title as the second-largest economy, after the US but ahead of China, on some measures. Japan has seen its economy shrink by more than 8 per cent during the recession.

The strong yen appears not have held back export growth, and Japanese firms sold 21.7 per cent more goods, on an annualised basis, than in the previous quarter. As a major exporter and manufacturer, Japan suffered more than most advanced economies from the severe slowdown in world trade last year, and from the savage running down of stocks by retailers globally, especially in the car industry. Now that trade has revered and there is some evidence of renewed stock-building, those pronounced, pro-cyclical trends have gone into reverse. China's return to breakneck growth is also helping to pull Japan along. The relative strength of domestic consumption, the shortage of which has helped leave Japan in a deflationary cycle for the last two decades, is also a hopeful sign.

Kyohei Morita, an analyst at Barclays Capital, said yesterday: "A turnaround in capital spending increases the sustainability of economic recovery. Even so, the economy looks headed for a slowdown in the first half of 2010 as the boost to consumption from earlier stimulus measures runs its course and public investment starts to decline in reaction to the frontloading in 2009." Some economists also voiced caution about accepting the latest data at face value. Even more than Britain's Office for National Statistics, the Japanese statistical service has come under fire for producing initial estimates for quarterly GDP which were wildly different from subsequent revisions. The third quarter figure of nil growth, for example, has been revised down from 0.3 per cent, itself a downgrade of the initial estimate of a 1.2 per cent quarterly expansion. The first estimate of GDP is based on survey data, while the second estate adds information from companies' financial statements. The strong figures relieve pressure on policymakers to boost the Japanese economy further. Naoto Kan, the Finance Minister, has also recently suggested a willingness to increase sales taxes.