Page last updated at 06:48 GMT, Monday, 16 November 2009

Japan's economy continues growing

Japanese shoppers
Consumer prices in Japan are falling but demand remains shaky

Figures released by the Japanese government show that the country's economy has grown for a second successive quarter.

The world's second biggest economy grew by 1.2% in the three months from July to September - faster than economists had predicted.

However, analysts say overall growth is likely to be sluggish for years.

The global downturn had plunged Japan into its worst recession since World War II.

Japan's Trade Minister, Masayuki Naoshima, apologised for disclosing the market sensitive third-quarter GDP figures to oil industry executives ahead of its official release.

It was the first GDP data released after Prime Minister Yukio Hatoyama's new government took power in mid-September.


Most economists say there is little chance of Japan's economy returning to recession, given the latest figures.

Stimulus measures were credited with lifting consumer spending and capital spending rose, but analysts say growth will slow as wages stay low.

"The economy is expected to continue to recover as overseas economies improve. At the same time, the employment situation remains very bad
Naoto Kan, Japan's National Strategy Minister

Even though subsidies and tax breaks enacted by the previous government will remain in place until next year, an expected fall in year-end bonuses and a scarcity of jobs mean households will have less to spend.

"With weakness ahead in private consumption or public spending, a slowdown is unavoidable in the January-March and April-June quarters," Kyohei Morita, chief economist at Barclays Capital in Tokyo, told Reuters.

"The one bright spot is that capital spending turned positive. However, while this signals that capital spending is starting to rise from the bottom, the size is still not enough to promise the kind of speed that would be required to prevent a slowdown in the first half of 2010," the economist added.

Deflation risk

Economists said that the new Democratic Party-led government's measures to support households would eventually help, but they may not make an impact until the second half of next year.

The government is still considering whether it will issue extra budgetary support measures.

National Strategy Minister Naoto Kan said that he saw signs Japan was entering a period of deflation.

"The economy is expected to continue to recover as overseas economies improve," Mr Kan told reporters after the GDP data were released.

"At the same time, the employment situation remains very bad and downside risks exist in overseas economies."

Deflation can hurt an economy because falling prices can cause consumers and businesses to delay purchases, dragging the economy down further.

Japan came out of recession after its economy grew by 0.9% in the April-to-June quarter after four consecutive quarters of contraction.

Japan officially fell into recession last year and there was a dramatic fall in growth in the January-March period as the world economic slowdown hit Japanese exports hard.

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