Japan all-industry index helps bolster optimism
By Ann Saphir
Bloomberg News
TOKYO — Japan's economy probably grew for the first time in a year in the first quarter as exports and factory production recovered, according to an index used as a proxy for gross domestic product.
Associated Press
Stocks and the yen rose after a report showed the all-industry index, which measures demand for services, state spending and factory production, rose 0.6 percent in the three months ended March 31 from the previous quarter.
On the foreign exchange market in Tokyo, the U.S. dollar was sharply lower against the yen in early trading today. Upbeat statistics also invigorated Japan's stock market.
The gain suggests the world's second-biggest economy is emerging from 18 months of recession. A recovery may be slow because Japan is relying on Toyota Motor Corp. and other exporters to fuel growth, and the rising yen may erode their profits.
"We're going to get a nice pop in economic growth in the first quarter," said Frank Packer, an economist at Nikko Salomon Smith Barney Ltd., who expects growth of 1.1 percent. Still, with incomes and consumer spending falling, "the recovery will be brutish and short," he said.
The services industry, which makes up 60 percent of gross domestic product grew just 0.1 percent in the first quarter, the report showed.
The yen climbed as high as 123.53 against the dollar after the report was released. The yen's 6.4 percent gain against the dollar this year may dent exports and slow Japan's recovery from its third recession in a decade.
Before the rally, the weak yen helped exporters such as Nissan Motor Co. boost earnings in the fiscal year ended March 31, limiting the economic contraction. Nissan, Toyota, and Sony Corp. have based profit growth projections for this fiscal year on an average yen rate of 125 to the dollar.
The economy is "led only by exports, which is helping manufacturers," said Yasukazu Shimizu, a senior economist at Aozora Bank Ltd. "There will be a time-lag before nonmanufacturers start to pick up, and a recovery will be slow."
The report showed that demand for services rose for the first time in four months in March as warm weather spurred demand for new-season clothing at Takashimaya Co. and other department stores.
The tertiary activity index, which tracks retailers, utilities, restaurants and other service providers, rose 1.2 percent in March, double economists' expectations of a 0.6 percent increase. The index fell 2.5 percent from a year ago.
The all-industry activity index, which adds factory production and government spending to the tertiary index and is regarded as a proxy for gross domestic product, rose 1.2 percent in March from the previous month.
