Japan’s gross domestic product increased 0.9 percent in real terms in the July-September quarter from the April-June quarter for an annualized 3.9 percent growth rate. The 0.9 percent increase contrasts with the 0.4 percent rise registered in the previous quarter.

Domestic demand pushed up GDP by 0.9 percent. Net exports (exports minus imports) pushed it up by only 0.02 percent. It appears as if economic growth was driven by strong domestic demand, but this is deceptive.

Consumer spending, which makes up about 60 percent of Japan’s GDP, rose 1.1 percent from the April-June quarter, in a sharp contrast to the 0.1 percent rise in the previous quarter. But the rise in consumer spending was largely due to last-minute buying of eco-friendly cars and cigarettes ahead of the expiration of government subsidies for such cars and the increase in tobacco prices. Sales of air conditioners and beverages also increased due to the heat wave last summer.

Sales of durable goods alone, including cars and air conditioners, pushed up GDP 0.6 percent. But consumer spending went down in and after October because the special factors that contributed to increased spending no longer applied. Sales of new cars in October suffered the worst drop since 1968.

Exports, which have underpinned the Japanese economy, have weakened. In the July-September quarter, they registered a 2.4 percent increase, much lower than the 5.6 percent increase posted in the previous quarter. Economic and fiscal policy minister Banri Kaieda admitted that sluggishness in overseas economies and the rise in the value of the yen constituted an additional downward risk for the Japanese economy.

The yen is likely to remain high because of the United States’ “ultra-easy” money policy. The growth of emerging economies including China is likely slow down because they are inclined to raise interest rates to combat inflation.

The government should execute the fiscal 2010 supplementary budget as soon as possible and the Bank of Japan should take necessary steps to prevent a second dip in the economy. The government also should work out specific measures to help revitalize enterprises.

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