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Cabinet Office’s revised GDP figures, exports and the Current Account Surplus

The Cabinet Office has released its revision to fourth quarter (October-December) 2006 GDP estimates. The figures showed a 1.3% increase from the previous quarter, an upward revision from the previous 1.2%. In annualized terms, GDP estimates increased from 4.8% to 5.5%.

The initial GDP estimates for Japan’s fourth quarter were released on February 15.

The growth pace in the forth quarter of 2006 was the fastest since the October-December quarter of 2003, when real GDP grew by 1.5% over the previous quarter, for an annualized rate of 6.3%.

The third quarter of 2006 had seen 0.1% growth against the second quarter, annualized at 0.5%.

As Bloomberg hints, the current economic growth is being driven by large manufacturers such as Toyota and Cannon, who are seeing surges in both production and exports, despite the continued stagnation in domestic demand. Exports increased 18.2% in January from the previous year, led by sales of automobiles, electronics and steel, according to Current Account Surplus data.

As Bloomberg points out:

Toyota earned 63 percent of total sales in foreign markets in 2006 and Sony, the world’s second-largest maker of consumer electronics, made 70 percent of its sales outside Japan that year.

As companies continue to splurge on capital spending in efforts to reach external markets, some economists remain worried of a global slowdown, expressing fear that Japan is increasingly less protected against such a happening.

Daiwa Institute of Research senior economist Junichi Makino weighed in with the following comments:

Today’s data confirmed simply that the corporate sector has maintained its brisk investment behavior until the end of December, but this does not assure that they will do so in the future…The corporate sector here is rather hostage to the downside risk going forward…Given this scenario, the Bank of Japan may have a chance to hike interest rates only twice in the new fiscal year to March 2008, with the nearest rate hike seen around August or September this year.

In January 2007, the yen stood at 120.40 to one US dollar, while a year earlier it averaged 115.54. The weaker yen has been hurting exporters, but this afternoon showed a bit of strength as it is currently trading around the 118 mark.

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