Japan said today that its economy grew by a fraction of its recent breakneck pace in the three months to June as slowing US demand offset strong domestic consumption, but it remained upbeat about its recovery.
The world's second largest economy expanded by 0.2% in the three months to June from the previous quarter, when the growth rate was 0.7%. Economists had expected 0.4% growth in the June quarter.
On an annualised basis, the world's second largest economy grew by 0.8% in the June quarter, well below the 2.7% in the three months to June, the Cabinet Office said.
'While private consumption continued to moderately increase and corporate capital spending is expanding, public sector demand is continuously shrinking,' the Cabinet Office senior economist Masayuki Gotoh said.
Gross domestic product growth slowed mainly due to weaker exports - a key driver of Japan's recovery from recession in the 1990s - with shipments falling to the US. But private consumption, which accounts for nearly 55% of the Japanese economy, grew 0.5%, stronger than expected and up from an increase of 0.2% in the previous quarter.
The GDP deflator, a key price change gauge, showed a slower year-on-year drop of 0.8%, compared with the 1.2% decline in the previous quarter, as downward pressure on prices weakened.
The GDP deflator virtually vindicated the central bank's decision to hike interest rates last month, ending an unusual five-year policy of zero-interest meant to stimulate the economy and fight deflation.
The Bank of Japan today kept its benchmark rate at 0.25% - in line with expectations that it would not tighten credit so quickly after its momentous decision.
Some experts fear the economy is already overheating under the virtually free credit. June machinery orders released on Wednesday soared far beyond forecasts.
But the finance ministry said yesterday that Japan's US-bound shipments rose just 7.6% in June, down from 20.4% in May, 15.2% in April and 11.2% in March.
