Japanese growth at 13-year high

Exports will be key to keeping recovery bubbling

Japan has unexpectedly cut its output estimate for the last three months of 2003, but economic growth remains at its fastest pace in 13 years.

Gross domestic product was up 6.4% year on year in the last quarter of 2003, a sharp cut from the earlier 7% estimate.

Analysts said the revision did nothing to dent the overall picture of a broad- based and vigorous recovery.

Japanese shares, which were earlier down by almost 1.3% in response to Wall Street, recovered somewhat on the news.

The Nikkei index closed down 98 points, or 0.9%, at 11,443.

Starting to spend

Most analysts had expected the GDP figure to be revised upwards, calculating that reports of stronger corporate investment should be starting to pay dividends.

In fact, the latest data showed that companies were running down their inventories, rather than investing in new equipment and materials.

Morgan Stanley economist Takehiro Sato said, however, that the inventory drawdown was a positive signal for the future, clearing the way for a fresh surge of corporate demand.

When companies start spending seriously once more, the current rapid pace of growth should accelerate, economists believe.

Ups and downs

The key to sustaining the recovery, the Japanese authorities say, is to focus on exports.

These are the traditional bedrock of the modern Japanese economy, but have suffered in recent months from the weakness of the dollar.

But figures released separately showed that Japan's current-account surplus, the broadest measure of trade in goods and services, had more than doubled year on year in January to 1.1 trillion yen (£5.4bn; $9.4bn).

Exports were up 11.3% on the same period of 2003, way outpacing modest import growth.

The Finance Ministry sold 20 trillion yen last year to prop up the dollar exchange rate, and has already spent 10 trillion this year.

Bank of Japan governor Toshihiko Fukui said the action was consistent with the policy of reversing the current debilitating deflation.