Sizzling pace to slow?

Despite these impressive-looking growth numbers, many Japan watchers don’t expect the Japanese economy to keep up that growth pace through the remainder of the year.

“Much of the growth reflected a rebound from special factors that depressed growth in the fourth quarter, including earthquakes, typhoons, and unseasonably warm weather,” explains Peter Morgan, chief economist at HSBC Securities Japan. “The growth from here is likely to be slower.”

The slow growth of Japanese exports and possible economic slowdowns in the U.S. and China are factors, which could also weigh on Japanese growth prospects throughout the remainder of 2005.

Nonetheless, Jim Glassman, senior economist at JP Morgan Chase in New York is upbeat on the overall outlook for the Japanese economy.

In general, we feel things are turning better there,” he says. “I don’t believe anyone thinks, ‘OK, we are off to the races now,’ but we expect Japan’s growth in the quarters ahead to be around 2 percent.”

Deflation continues to be a concern in Japan, and until it disappears, most analysts don’t see significant yen appreciation. However, it appears the end of that cycle may be near.

“At -1.2 percent year-over year, deflation is still significant at the GDP level,” Morgan says.

However, he also says at the core consumer price index (CPI) level, deflation doesn’t look as bad, with a recent -0.2 percent year-over-year reading. He expects CPI growth to stay negative in 2005, but turn positive in 2006.

When looking at the Far East as a whole, Brian Dolan, director of research at Gain Capital, is optimistic.

“The Asian region continues to be quite strong and there are few signs it’s slowing,” he says. “Taiwan, Korea, and Singapore are all doing very well. The Asian trajectory still looks very solid.”

That compares favorably to Europe and the U.S., where most analysts expect slowing growth this year.