Japan GDP surges, Europe’s shines, US simmers

PARIS - Japan led the large industrialised economies with 1.2 percent growth in the final quarter of 2006 and Europe was hot on its heels while the US economy seemingly settled back into a less inflationary stride.

By (Reuters)

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Published: Thu 15 Feb 2007, 6:22 PM

Last updated: Sat 4 Apr 2015, 9:55 PM

After reassuring words from US Federal Reserve chief Ben Bernanke, Tokyo published a report showing a major rebound that lifted the yen, sent Japanese shares to new highs and set markets alight with talk of an imminent interest rate rise.

For Europe, the yen rise, though nothing stunning, offered the prospect of relief for exporters struggling for years with Japanese firms helped by a weak currency -- an issue raised by the Europeans at talks among the G7 powers last weekend.

But one potential problem replaced another as the euro rose versus the dollar in the wake of a Senate hearing where Bernanke said he expected a moderate US economic expansion in 2007 and 2008, and that the inflation danger may be receding.

“There are some indications that inflation pressures are beginning to diminish,” Bernanke said.

That drove US stocks and bonds up but the dollar down as markets took the words to mean US official interest rates, far higher than in Europe and Japan, might be cut later in the year.

World on a more even keel

The basic economic picture compounded by Japan’s GDP release was the one the International Monetary Fund and Organisation for Economic Cooperation and Development have been predicting -- a ”rabalancing” of global growth where Japan and Europe do more.

“Outside the United States, economic activity in our major trading partners has continued to grow briskly,” Bernanke said. ”The strength of demand abroad helped spur a robust expansion in US real exports, which grew about 9 percent last year.”

Japan’s 1.2 percent rise in fourth-quarter gross domestic product was due in part to a recovery in personal consumption and beat forecasts for a rise of about 0.9 percent quarter-on- quarter in the last three months of 2006.

Third-quarter growth, which had slowed sharply to a mere 0.1 percent, had raised some doubts about how well Japan was doing.

Euro zone GDP rose 0.9 percent in the same period, led by Germany and helped by a major rebound in Italy, and US GDP rose by roughly the same amount, according to the latest US Commerce Department estimates, issued at the end of January.

“This is a strong reading,” said Norihiro Fujito, general manager of Mitsubishi UFJ Securities’ investment research and information division. “This will no doubt strengthen the argument for a rate hike by the BOJ next week, though I still think they will not raise rates,” he said.

Time trials

A Reuters poll of 49 traders and analysts in Tokyo’s foreign exchange and bond markets after the GDP data showed 24 expected the BOJ to raise rates to 0.50 from 0.25 percent at a policy meeting next week, while five expected a rate rise in March.

The central bank had the unenviable job of trying to decide when the economy had emerged sufficiently from almost a decade of deflation to justify tighter monetary policy, but without stunting growth by moving too fast or too furiously.

The Bank of Japan’s move from zero to 0.25 last July was the first rise in six years.

The current 0.25 compares to 5.25 percent in the United States, 3.5 and rising in the 13-nation euro zone and 5.25 percent in Britain, a country whose currency has risen even more strongly than the euro versus the yen.

While Japan’s figures impressed, some were quick to caution against premature conclusions of a decisive upturn in consumer demand, the weakpoint of an economy whose recovery from years in the doldrums was largely export-led.

Private-sector consumption, accounting for some 55 percent of GDP, led fourth-quarter GDP growth with a 1.1 percent rise, as more people stayed at hotels and bought cars and flat-screen TVs, a Japanese Cabinet Office official said.

That was above a median market forecast for a 0.8 percent rise in private consumption, rebounding from July-September when it dipped 1.1 percent due largely to bad weather.

But Economics Minister Hiroko Ota expressed a cautious view on personal consumption, although she said the GDP figures confirmed that the economy is recovering.

“If you look at consumption in both July-September and October-December, the movement is still largely flat and there’s still some weakness,” Ota told reporters.

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