Japan growth revised downward, with deflation deeper

By MarketWatch

TOKYO (MarketWatch) -- The Japanese government revised fourth-quarter gross domestic product growth down Thursday, due to slightly weaker corporate capital expenditures and private inventories, and also tweaked down a gauge measuring prices to show record-deep deflation.

Japan revised down its October-December GDP growth to an annualized 3.8%, data released Thursday by the Cabinet Office showed. That was below the preliminary reading of 4.6% annualized growth, and below a forecast for revised growth of 4.1% according to economists surveyed by Dow Jones Newswires and the Nikkei. See story on Japan preliminary GDP report.

GDP grew 0.9% from the previous quarter, the Cabinet Office said, compared to a preliminary reading of 1.1% growth.

Corporate spending was rose 0.9% in the quarter, less than the initial reading of a 1.0% rise.

Deflation is the key

The GDP deflator, a key gauge of deflation, was revised to a 2.8% year-on-year decline, compared with an initially reported decline of 3.0%, which some analysts said added pressure to the Bank of Japan to adopt more liquidity-boosting steps to counter deflation.

Such easing steps would likely weigh on the yen but boost the stock market.

"Forget about the revised headline number and inventory revision; if the worst deflation on record prompts the BOJ to finally step in less gingerly and adopt significant new easing measures, then we could get some meaningful yen weakening in April -- with a strong positive effect on the Nikkei," Uwe Parpart, chief Asia strategist at Cantor Fitzgerald, said in emailed comments.

The BOJ will likely consider more monetary easing at a two-day meeting starting March 16, Japanese business daily Nikkei reported last week. See full story on BOJ easing report.

Japan's monthly economic report, due out Monday, is expected to include an upgrade to the overall view for the first time in eight months, but the government will likely emphasize that Japan remains in deflation, the Nikkei reported Thursday.

The government will say that the economy is making a steady recovery due to corporate production growth on the back of stronger exports, particularly to China, but the monthly report will likely warn that the economy still faces challenges.

The yen weakened slightly after the revised GDP data were released, with the U.S. dollar buying 90.46, compared with 90.40 yen shortly before the release.

The Nikkei 225 Stock Average opened higher, and was up 0.9%.

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