02/15/2007, 00.00
JAPAN
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Japan renews with strong economic growth

GDP grew 1.2 per cent in last quarter of 2006, the strongest since 2004, but experts warn it is based on continent factors like higher exports and a weak yen. Central Bank will decide next week whether to raise interest rates or not.

Tokyo (AsiaNews/Agencies) – Japan reported a sharp upturn in economic growth in the last quarter of 2006, stoking speculation about a possible interest rate rise next week. Its GDP grew 1.2 per cent in the three months to December for an annualised pace of 4.8 per cent, for an eighth consecutive positive quarter, the strongest since 2004.

Companies have used their large profits to increase outlays on factories and equipment and pay back debt, thus favouring robust exports, helped by the weaker yen.

Economists cautioned, however, that the brisk clip was due to contingent factors like strong US demand and the weak currency.

Japan’s economy expanded by 2.2 per cent in 2006, picking up steam after growth of 1.9 per cent in 2005, but that compares to 3.4 per cent growth in the US, Japan's largest export market, and a 2.7 per cent expansion in Europe.

Hiromichi Shirakawa, chief economist for Japan at Credit Suisse, said economic growth was "very, very volatile" with consumer spending flat for the second half of last year as a whole.

He said growth was expected to slow in the first quarter of this year because consumption remained on a sluggish trend.

Private consumption grew 1.1 per cent from the previous three months, compensating for the 1.1 per cent loss seen in the third quarter.

Wages rose 0.2 per cent last year, barely rebounding from a near decade-long slide that cut average pay by about 10 per cent between 1997 and 2005.

Analysts are divided on whether Japan's central bank will raise its interest rates at the end of its meeting on February 21.

Japan's 0.25 percent key rate is much lower than the 3.5 per cent of the European Central Bank and the 5.25 per cent of the US Federal Reserve. But deflation remains still a possibility.

Junichi Makino, senior analyst at Daiwa Institute of Research, predicts that the Bank of Japan will hold off from raising interest rates because strong private consumption needs further recovery in the job market.

Private spending is expected to be sluggish for the current quarter due to the unusually warm winter,” he said.

Politics will also play a role. Prime Minister Shinzo Abe's government, focusing on policies to spur growth and stop the expansion of the world's largest public debt, wants to avoid an economic slowdown ahead of elections in April and July.

“Monetary policy is the domain of the Bank of Japan and should be decided appropriately, taking into account the government's views,”' Chief Cabinet Secretary Yasuhisa Shiozaki said.

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