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Economy

Japan seen racking up an eighth straight quarter of growth

Forecasters think GDP rose 0.8% in October-December, backed by consumption

Japanese shoppers likely opened their wallets a bit wider in October through December after scaling back spending in the previous quarter. (Photo by Maho Obata)

TOKYO -- Japanese real gross domestic product likely expanded an eighth consecutive quarter for the first time since the 1980s in the three months ended December, driven by a pickup in consumer spending alongside solid exports and business investment.

The average estimate of 15 nongovernment think tanks put real GDP growth at an annualized 0.8% -- slower than the previous quarter's 2.5% rise but in line with the roughly 1% level seen as the potential growth rate. Nominal growth, which is closer to how the public actually perceives the economy, was estimated at 1%.

If preliminary government data due out Feb. 14 confirms predictions of an expansion, it would continue a run of positive growth that began in the January-March quarter of 2016. This would be the longest streak since a 12-quarter stretch that began in the April-June period of 1986, before the economic bubble of the late '80s and early '90s.

The government data for last quarter is expected to show growth backed by a balance between internal and external demand.

Exports likely rose 2.3%, thanks to expansion in such foreign economies as the U.S. and China. At home, such factors as a stock market rally buoyed consumer confidence, fueling an expected 0.4% gain in consumer spending after a slowdown in the previous quarter. Capital spending apparently climbed 1.1% amid investment in labor-saving technology by short-handed businesses as well as growing semiconductor demand.

Residential investment is expected to have dropped 1.9% as developers hit the brakes on apartment construction. Public works spending likely slowed 1.6% as well. Both also saw declines in the July-September quarter.

The slowdown in overall growth from the previous quarter owes partly to rising imports of such goods as crude oil. Though the increase stems from GDP-boosting production, imports are subtracted from GDP, weighing on the growth rate.

Similarly, "higher smartphone imports could be interpreted as a sign of recovering consumption," said Hideki Matsumura of the Japan Research Institute.

That many economists do not account for inventory effects in their estimates may also be a factor. Higher inventories contributed 1.5 percentage points to growth in the July-September quarter.

Steady economic expansion is widely expected to continue in the January-March quarter and beyond. Exports are still growing at a brisk clip, thanks partly to solid global demand for semiconductors, and capital spending is trending higher as well. Many economists forecast growth in the lower 1% range throughout 2018.

Higher wages will be key to spreading the benefits of the recovery more broadly. Many forecasters see wage growth coming in below 3% -- too weak to drive an acceleration in consumer spending. "Companies have a deep-seated wariness of higher fixed costs," said Shinichiro Kobayashi of Mitsubishi UFJ Research and Consulting.

The main risk to continued expansion lies in financial markets. A prolonged stock market downturn or rise in long-term interest rates "would cause turmoil in a global economy that has been inflated by a bubble," warned Ryutaro Kono of BNP Paribas Securities (Japan). If U.S. interest rates climb faster, dollar-denominated debt could become a heavier burden on emerging economies.

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