Japan Q4 GDP revised down, wholesale prices up

(Reuters) - Japan’s economy shrank at a slightly faster annualised pace in the last quarter than initially reported as capital spending was revised lower, reflecting dull domestic demand, but exports likely fuelled a return to growth this year.

The downward revision is unlikely to alter the government’s view that the economy will soon emerge from a lull, but the threat of high oil prices and signs of a policy stalemate with opposition parties could pose risks to the economic outlook.

Wholesale prices rose in February at the fastest annual rate since November 2008 due to high commodity prices, which could eventually put pressure on corporate profits and pose another risk to economic growth.

“Exports will lead growth this year, but consumption may not do well as wage growth is very slow,” said Yoshiki Shinke, senior economist at Dai-Ichi Life Research Institute.

“I’m very worried about high oil prices, because that could hurt export demand and domestic consumption. If anything could derail Japan’s recovery, it would likely be due to oil prices.”

Gross domestic product fell a revised 0.3 percent in the fourth quarter from the prior quarter, matching the median market forecast and unchanged from the preliminary reading.

On an annualised basis, the economy contracted 1.3 percent, also matching economists’ forecast. The fall was slightly bigger than the preliminary reading of a 1.1 percent decline.

OIL PRICE CONCERNS

“The economy was stalling in October-December but we hope and think it is picking up from this year on the back of exports and domestic car sales,” said Takashi Wada, a parliamentary secretary at the Cabinet Office.

“We’re most concerned about oil price trends stemming from uncertainty in the Middle East,” he told reporters, adding that he was also worried about the fate of the 2011/12 budget and related bills in a split parliament.

Capital expenditure rose a revised 0.5 percent, less than the government’s preliminary reading of a 0.9 percent rise and the 0.8 percent gain expected by economists.

“The slowdown in capital spending was caused primarily by weak domestic demand, but fast-growing emerging economies will boost Japan’s exports and manufacturing spending this year,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

Given solid exports and steady cash flow at manufacturers, capital spending is likely to rise 4 to 5 percent in the year from April 1 and help the economy to grow 1.6 percent, even though sluggish personal consumption will remain a drag, he said.

The revised GDP data showed private consumption slid 0.8 percent in the fourth quarter, against an initial reading of a 0.7 percent decline, contributing to the downward revision of the overall figure.

Japanese wholesale prices rose 1.7 percent in the year to February, Bank of Japan (BOJ) data showed on Thursday, accelerating their pace of gains for a fourth straight month on higher commodity prices.

The rise in the corporate goods price index (CGPI), which measures the prices that companies charge each other for their goods and services, was slightly less than a median forecast for a 1.8 percent annual increase and the biggest rise since a 2.4 percent annual gain in November 2008.

Analysts polled by Reuters expect Japan’s economy to grow 0.5 percent in the current quarter as exports and factory output have been improving. The economy is likely to continue growing this year but high oil prices pose a risk.

The BOJ last year cut interest rates virtually to zero, set up a fund to buy assets ranging from government bonds to real estate investment trusts, and created a scheme to encourage lending to nascent industries with high potential for growth.

The measures have done little, however, to spur bank lending as companies have ample cash flow.

The central bank, which next meets on March 14-15, has indicated that it will stick with its ultra-easy monetary policy but economists warn that deflation will end only gradually.

Japanese Prime Minister Naoto Kan, who suffered a blow this week when the foreign minister abruptly resigned over a political donation scandal, is struggling to enact a $1 trillion budget for the fiscal year from April in a divided parliament and to keep the ruling party from splintering.