Japan unveils GDP surprise
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June 10, 1999: 4:49 p.m. ET
No. 2 economy expands by a striking 1.9 percent in 1Q; economists fear a backlash
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LONDON (CNNfn) - Japan's economy grew an impressively strong 1.9 percent in the first quarter, the government said on Thursday, but analysts warned the first expansion there in nearly two years may not persist.
The Economic Planning Agency figures provided an unexpected sign that Japan, the world's second-largest economy and the main engine of Asia, may be reviving after five straight quarters mired in recession.
The report showed gross domestic product grew 1.9 percent in the first quarter -- or at a stunning annual rate of 7.9 percent, far higher than the 0.23 consensus expectation among economists polled by Reuters.
That was a marked contrast from the two percent decline in Japan's GDP in fiscal 1998.
Stocks in Japan rallied on the news. The benchmark Nikkei 225 index gained 480.1 points, nearly 3 percent, to close at 17,102.6. The yen rose to a seven-week high against the U.S. dollar at 117.77.
Government officials in Japan and in the United States were hesitant to trumpet the numbers as a sign of rebirth for the economy.
"It's too soon to take this and say the Japanese economy has recovered," said EPA Chief Taichi Sakaiya. "We must cautiously monitor economic conditions."
Sakaiya stood by the agency's assessment, released earlier this week, that the economy is no longer contracting. But, he added, it is still dependent on the massive infusion of public works spending by the government.
And U.S. Treasury Secretary Robert Rubin, speaking at a news briefing before a weekend gathering of Group of Seven finance ministers, warned "there are enormous challenges ahead. Individual quarters' results don't give you much sense of what's happening in an economy."
Several analysts also cautioned the strong results may amount to little more than a one-time blip upward.
"These numbers are much better than anticipated. It is difficult to explain from the data we already have," said Russell Jones, the chief economist at Lehman Brothers in Tokyo.
"Japanese GDP figures often throw up some oddities -- and they have certainly done it this time," he added.
Andrew Shipley, senior economist at Schroders Securities in Tokyo, said the most surprising aspect of the data was the implied strength of the private sector.
"Most indicators suggested consumer spending was continuing to fall," Shipley said.
Shipley said, however, that Japan's economy was likely to come back to earth with a bump in the second quarter.
"We will probably see a pretty sharp correction in the second quarter," he said. "We saw the same thing in 1987 when the first quarter was up over 2 percent and then fell by the same amount in the second quarter."
Still, the news was enough to spark speculation Japan may no longer be able to maintain rock-bottom interest rates, used as a spur to the economy. Suddenly some analysts hinted of an overheating economy.
"How can the [Bank of Japan] keep its 'zero-rate' policy while the economy is growing at such a pace?" said Kazuhiko Ogata, senior economist at ABN Amro Securities.
The BOJ has held the discount rate at an all-time low of 0.5 percent and is guiding the key overnight call rate to virtually zero percent.
The results, which were expected to come after the close of trading in Japan Thursday, were leaked to daily Nihon Keizai Shimbun, provoking the reaction on the stock market.
-- from staff and wire reports
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