Japan's economic growth weakens sharply
ReutersA container port in Tokyo.
HONG KONG (MarketWatch) -- Japan's economic growth sharply decelerated in the April-June period as consumption weakened after a solid increase in the preceding quarter and as exporters struggled because of a strong yen.
Gross domestic product grew an annualized 1.4% from the preceding three months, the Cabinet Office reported Monday, with the result marking a sharp cooling from the upwardly revised 5.5% expansion in the January-March quarter.
The result fell far short of expectations for 2.7% growth, according to a Dow Jones Newswires survey, as a strong Japanese yen pressured the country's exports.
On a quarter-on-quarter basis, Japan's economy grew 0.3% in the three months to June, slowing from 1.3% the previous quarter and missing a 0.7% forecast. The annualized gain for January-March was marked upward from 4.7% previously.
"We took today's result as rather positive, as the economy continued to expand after the high growth boosted by the leap-year effect" in the first quarter, RBS Securities Japan economists led by Junko Nishioka wrote in a note to clients.
"Reconstruction demand, which was funded by the supplementary budget for [the previous fiscal year], seems to have started to take place and is likely to support overall business activities," they said.
However, the RBS economists added that the data suggests it will take more time for the economy to recover from deflation, which in turn will likely keep government and market pressure on the central bank to ease monetary policy further.
The data, coming on the heels of last week's Bank of Japan decision against additional monetary stimulus, also drew some criticism for the central bank. Read more about last week's BOJ decision.
"The Bank of Japan might have been unwise in not easing monetary policy last week. We remain of the view that since the [yen] is no longer trading like a risky asset, hopes for significant easing by the European Central Bank and the [U.S. Federal Reserve] do not extend to the BOJ," said Prakash Sakpal, Asia economist at ING Financial Markets Research.
Yen drags on growth
While Japan managed to post a surprise trade surplus in June, the swing came as both exports and imports fell from a year earlier, with shipments to Europe plunging more than 25%. Read more on Japan's June trade account.
As Europe's debt crisis grinds on, FactSet data show the euro (EURJPY) has consistently traded below the ¥100 level since mid-July, weighing on trade with the euro zone.
And while the U.S. dollar (USDJPY) has risen above its late-2011 lows against the Japanese currency, it is still weak by historical standards.
The Japanese GDP numbers had a muted effect over the foreign-exchange market, as the euro slipped to ¥96.09 from ¥96.13 just ahead of the data release, while the dollar held steady at ¥78.26.
Private consumption has helped cushion some of this foreign-exchange impact, and was a factor in the strong growth in the first quarter of calendar 2012. Read more on Japan's January-March GDP.
However, the currency headwinds have hit results at many Japanese blue chips, with
Japanese stocks ended Tokyo morning session little changed after the data, failing to hold on to early gains. The Nikkei Stock Average (100000018) was flat at 8,892.61 at the midday break.
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