• Bloomberg


The economy’s expansion may slow toward the end of this year after getting a temporary boost in the third quarter as a surging yen crimps exports and fading stimulus measures force consumers to pare outlays.

Gross domestic product grew at an annualized 2.5 percent in the three months that ended Sept. 30, following a 1.5 percent expansion in the previous quarter, according to the median forecast of 21 economists. The Cabinet Office will release the report Monday.

Third-quarter growth driven by consumer spending will be followed by an economic contraction this quarter, analysts including Yoshiki Shinke forecast. That may increase pressure on Bank of Japan Gov. Masaaki Shirakawa to buy more assets to support growth and beat deflation.

“There’s a high chance that the economy will shrink considerably in the fourth quarter as a huge pull-back in consumer spending is expected and as export growth continues to slow,” said Shinke, senior economist at Dai-ichi Life Research Institute. “The third-quarter growth was pushed up by a temporary lift that won’t be sustainable.”

Growth may slow to a 0.3 percent annual pace in the October-December period, according to a separate survey of economists, with seven of 15 predicting GDP to shrink.

Consumer spending, which makes up about 60 percent of GDP, drove last quarter’s expansion as households stepped up purchases of fuel-efficient vehicles ahead of a subsidy program’s expiration in September and smokers stocked up on cigarettes before taxes were increased Oct. 1. According to economists in a survey, outlays probably rose 0.9 percent from the previous three months, when they were flat.

The gains in spending at home helped counter the first decline in overseas shipments in six quarters. Net exports, or shipments less imports, cut 0.1 percentage point of GDP in the third quarter, the survey found.

The looming fourth-quarter slowdown is “a man-made disaster” caused by short-sighted policy decisions, said Ryutaro Kono, chief economist at BNP Paribas in Tokyo. “While no one denies that green car subsidies were a major boost to automobile sales, the stimulus didn’t create any added value. All it did was to rob demand from the future.”

The fallout from the stimulus, coupled with the stronger yen, may compel the central bank to loosen credit even after it cut rates near zero last month and introduced a ¥5 trillion asset purchase program. Shirakawa needs to consider expanding the fund to between at least ¥20 trillion to ¥25 trillion, said Koichi Hamada, a Yale University professor who taught the governor at the University of Tokyo.

A further strengthening in the yen and continued price falls after the BOJ’s Oct. 5 move suggest the measure may be “too little and too late” and “far insufficient,” Hamada said Wednesday.

Prime Minister Naoto Kan’s Cabinet endorsed last month a ¥5.1 trillion stimulus package and has extended its incentive program to buy energy-saving household appliances by three months to March 31.

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