The Wall Street Journal-20080214-Politics - Economics- Japan-s Economy Grows at Surprising Pace

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Politics & Economics: Japan's Economy Grows at Surprising Pace

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TOKYO -- Japan's economy grew at an unexpectedly robust pace during the final quarter of 2007, as strong capital spending by companies and demand for Japanese goods from Asian consumers more than offset the impact of a slowdown in the U.S.

The government said Thursday that real gross domestic product, the widest measure of the nation's economic activity, expanded 0.9% in the October-December period from the previous quarter, or an annualized rate of 3.7%. This represents sharp acceleration from the 1.3% annualized growth in the July-September quarter, and it marks the fastest pace of growth since the first quarter of 2007 when the economy expanded by an annualized 3.9%.

For calendar year 2007, real GDP grew by 2.1%, down slightly from 2.4% in 2006.

Japan's economy, however, is likely to begin losing steam starting in the current quarter. Slowing demand from U.S. consumers is already beginning to weigh on Japan's overall exports, which have been the main driver of the economy over the past several quarters. Economists, on average, expect the growth will slow to 1.7% or so during the fiscal year starting April.

The surprisingly strong GDP number for the October-December quarter was due primarily to a jump in corporate capital spending, which rose 2.9% from the previous quarter. This was in contrast to the first three quarters of 2007, when companies spent cautiously or actually reduced their investments amid signs of slowing consumer demand in Japan and the U.S.

Exports continued to be a big contributor to Japan's growth, expanding by 2.9% from the previous quarter, the same pace as in the third quarter. Growth in household consumption, the biggest component of the GDP, accelerated to 0.2%. Consumer appetite showed resilience despite reports of declines in semiannual bonus paid out to many workers before the year end.