Japan economy up sluggish 2.6 pct for quarter

[August 12, 2013]  TOKYO (AP) -- Japan's economy grew at a slower-than-expected rate of 2.6 percent last quarter, suggesting investment has been slow to pick up despite strong public spending and ultra-lax monetary policies.

The preliminary GDP figure reported by the Cabinet Office on Monday reflects a 0.6 percent increase from the previous quarter for the world's third-largest economy, as the recovery was sustained despite the weaker-than-anticipated growth.

More than 3.0 percent growth in annual terms had been forecast for the April-June period, after the economy expanded at a 4.1 percent pace in January-March. The weaker data will likely raise pressure on Prime Minister Shinzo Abe to push ahead with reforms he has promised to help improve Japan's competitiveness and sustain growth in the long run.

However, given that public spending did not rise as quickly as planned, the extra money for projects in the pipeline will likely boost growth in the coming months, said Masamichi Adachi, an economist at JPMorgan in Tokyo.

"We can expect higher gains in public investment, as we expect a slowdown in private consumption but we can expect accelerated spending in the latter half of the year," he said. "This is decent enough to say the Japanese economy is maintaining solid momentum."

If forecasts for a fall-off in growth in the current quarter are accurate, however, the calls for more radical reforms are bound to build, as investors watch for signs that Abe's "Abenomics strategy" can really fuel a lasting recovery from years of stagnation.

The data show the strongest contribution to growth in the last quarter coming from public spending and exports, while private investment weakened.

Many of Japan's corporations have seen their profitability improve as the yen has softened against other currencies, boosting the value of their overseas earnings when they are counted in yen terms. The recovery in exports has been a boon for big global corporations like Toyota Motor Corp.

But corporate investment has remained flat, falling 0.1 percent in April to June. Meanwhile, wages have risen only for some workers, accentuating concerns over whether household income will keep pace as prices rise under the government's campaign to end deflation through extreme monetary easing.

Abe and some of his advisers have expressed uncertainty over a government commitment to raise the sales tax by 3 percent in April. A decision on that is due within months, and it appears increasingly likely Abe might opt for a more gradual approach to raising the tax, which now stands at 5 percent, to help improve public finances.

[Associated Press; By ELAINE KURTENBACH]

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