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Japan’s quarterly GDP revised down to 0.6% growth in 2Q, but analysts see strong continued expansion

AFP-JIJI, Kyodo

Japan’s growth rate for the second quarter has been revised down to 0.6 percent from an initial estimate of 1.0 percent, government data showed Friday.

But the latest data still marks the longest period of expansion in more than a decade for the world’s third-largest economy, with analysts saying the economy still shows strong performance.

The economy has been picking up steam, mainly on the back of surging exports including smartphone parts and memory chips, with investments linked to the Tokyo 2020 Olympics also giving growth a boost.

Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, said that strong growth is likely to continue, although concerns over North Korea will linger.

“Looking ahead — of course we have the North Korean issue which is hard to predict — but otherwise no urgent worries or risks so the economy will likely continue picking up,” he said.

Marcel Thieliant, senior Japan economist at Capital Economic, said there are “early indications” pointing to a possible slowdown in the third quarter.

“But the bigger picture is that the economy is experiencing one of the longest recoveries in recent history,” said Thieliant.

On an annualized basis, the economy grew 2.5 percent, driven by robust domestic demand and corporate investment, which offset a quarterly decline in exports.

The yearly growth rate is especially impressive given that Japan’s potential growth is said to be around 1 percent or less, Shinke noted.

But corporate investment was much weaker than the preliminary figures, with the latest data showing 0.5 percent growth in the second quarter, compared with a 2.4 percent preliminary figure.

The labor market is tight and business confidence is high but efforts to lift inflation have fallen flat despite years of aggressive monetary easing by the Bank of Japan.

Even so, the latest reading means the economy has had six consecutive quarters of growth — its best string of gains since the tenure of former Prime Minister Junichiro Koizumi.

Friday’s numbers are also good news for Prime Minister Shinzo Abe, whose brief and underwhelming first term as leader came directly after Koizumi.

A string of short-term leaders followed Abe’s first term before he swept back to power in late 2012 on a pledge to reignite the once-booming economy with a plan dubbed Abenomics.

The economics policy — a mix of massive monetary easing, government spending and structural reform — stoked a stock market rally and fattened corporate profits.

But some critics have cast doubt on the efficacy of Abenomics, as heavily indebted Japan grapples with low birthrates and a shrinking labor force.

Friday’s data showed private consumption, which accounts for more than half of GDP, picked up 0.8 percent in the second quarter from the previous three-month period, compared with a 0.9 percent rise in the preliminary estimate.

However, Takashi Miwa, chief Japan economist at Nomura Securities, cautioned that growth in the second quarter was bolstered by private consumption, which he said was “not sustainable.”

The yen has been strengthening partly due to its status as a safe-haven currency amid the North Korea crisis and this could weigh on exporters in the future, he said.

A pick-up in inflation without wage hikes at the same time could also provide a drag on growth, he warned.