Japan’s economy appeared to have stabilized on the back of flat growth in the fourth quarter after contracting in the previous two quarters of 2012, indicating a recovery in the economy but at a slower rate, revised data released from the cabinet office Friday showed.
The data revealed that Japan’s Gross Domestic Product (GDP) growth remained unchanged in October-December quarter in comparison with the previous quarter and against the earlier estimate of a contraction of 0.1 percent. However, it was lower-than-expected as analysts forecast a 0.1 percent growth for the period.
The economy, struggling to come out of a mild recession, grew 0.2 percent in the fourth quarter in line with the analysts’ estimate on a year-on-year basis.
The data puts pressure on the Shinzo Abe's government, which came to power in December last year promising bold measures to boost economic growth.
Prime Minister Abe had been pursuing aggressive fiscal measures to pull the world’s third largest economy out from a prolonged deflation. Falling exports and an investment slump forced the Abe government to resort to radical monetary measures to stimulate growth. The government increased public spending and adopted an export-friendly monetary policy that has led to a sharp depreciation of the Japanese Yen.
Meanwhile, a separate data released Friday showed deficit in the current account for a straight third month for the first time, indicating need for balanced approach from the government in its export-favoring fiscal policy, at a time when imports are surging.
Data from the finance ministry showed that Japan’s current account deficit stood at 364.8 billion yen ($3.85bn) in January, against a median forecast for a deficit of 626.0 billion yen, registering deficit for third consecutive month - the longest sequence of deficits since the data compiling commenced in 1985.
Abe’s recent fiscal stimulus and the depreciation in the domestic currency has helped the export sector to pick up, but has raised the value of imports. Japan’s energy imports has been rising steadily since a year as the country has shut down most of its nuclear power reactors following crisis in one of the nuclear power station after an earthquake.
Economists believe the government needs to watch the situation as a heavily export-oriented approach at a time of global slowdown might prove disastrous for the economy.
"The yen's weakening will tend to weigh on the current account balance at first, due to the J-curve effect of a weaker currency having immediate impact on the value of imports before boosting exports," Takeshi Minami, chief economist at Norinchukin Research Institute told Reuters.
"That said, there's a risk of depending heavily on the scenario of an export recovery – European economies remain weak, China is unlikely to achieve higher growth and the United States faces fiscal problems," he said.
On Thursday, the Bank of Japan held the policy steady and said in its assessment that the economy had stopped worsening indicating that there will be moderate recovery this year.
Japan’s Nikkei 225 Stock Average surged to a new 53-month high Friday, to close up 2.64 percent at 12,283.60 – its highest closing level since September 2008, while Yen hit a 3-1/2-year low of 95.44 against the dollar Friday.
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