Japan growth slows as exports struggle

Growth in export-driven Japan slowed in the three months to June, official data showed on Monday, with the debt crisis in Europe and the unsteady global economy crimping demand.

Gross domestic product grew a worse-than-expected 0.3 percent in the second quarter from the previous three months, the Cabinet Office said, a fourth straight rise but much slower than the brisk 1.3 percent seen in January-March.

The data came in significantly lower than market expectations for a 0.7 percent increase, as exports slowed and despite a ramp-up in government spending since the March 11 quake-tsunami disaster last year.

The economic growth translated into an annualised 1.4 percent rise, below the market forecast for 2.7 percent increase and sharply slower than the 5.5 percent expansion in the January-March quarter.

Adding to the headwinds being faced by the world's number three economy is the strong yen, which has made the country's exports less competitive in overseas markets.

However, Japanese economic and fiscal policy minister Motohisa Furukawa highlighted the growth of private demand to support his view for continued moderate growth.

"The economy of our country is trending upward, driven by domestic demand," he said in a statement.

"With the employment and earnings environment expected to improve further... the economy is expected to maintain moderate growth for the July-September period and later," he said.

"However, we need to pay careful attention to downward risks for the global economy amid the European fiscal debt crisis."

Private consumption, which accounts for about 60 percent of the Japanese economy, expanded 0.1 percent in the three months, dropping steeply from a 1.2 percent expansion in the previous quarter.

Exports of goods and services rose 1.2 percent during the April-June period, slower than 3.4 percent seen in the previous quarter, the Cabinet Office said.

Imports meanwhile rose 1.6 percent, compared with a rise of 2.2 percent in January-March.

While officials stressed the bright side of the data, private economists sounded concerns as the Chinese economy, which is a key driver of regional growth, suffers a deceleration and stimulus programmes at home begin to expire.

"In general, we can't see any strength in the Japanese economy, which was mainly sustained by government fiscal measures," said Hideki Matsumura, senior economist at Japan Research Institute.

The government has taken a series of steps to spur growth, including offering incentives for fuel-efficient vehicle purchases and measures to rebuild the northern region hit by the deadly earthquake and tsunami.

"If the economy can maintain the current strength, it is likely to mark another growth in the July-September quarter," Matsumura said.

Among factors for future concerns is the auto purchase programme ending likely by early September, Matsumura said.

"The slowing Chinese economy is another concern. The Japanese economy may suffer a contraction in the October-December quarter," he said.

Jun Kawakami, market economist at Mizuho Securities, shared a similar view and voiced concerns for the near future.

"Private consumption is a concern as the government policies that have stimulated it, particularly subsidies for fuel-efficient vehicles, are peeled back," he said.

-- Dow Jones Newswires contributed to this report --

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