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Japan's economic growth seen on track despite market swings

Strong global expansion underpins upbeat domestic projections

TOKYO -- The Japanese economy should overcome the stock slump and strengthening yen to maintain a respectable growth rate this fiscal year and the next, a survey of private-sector economists indicates.

The real gross domestic product grew at an annualized rate of 0.5% on the quarter in the October-December period of 2017, the Cabinet Office reported Wednesday. The moderate showing is credited to strong exports, as well as private consumption that recovered from the impact of last summer's typhoon season.

This eight straight quarters of growth is the country's longest upward trend in 28 years. But the run does not account for the current volatility in international financial markets that has been touched off by surging U.S. Treasury yields.

Even taking the new volatility into account, private economists from 16 firms believe on average that Japan's real GDP will end up growing by 1.7% during fiscal 2017, which ends in March. The average projection for fiscal 2018 is 1.3%.

Many believe the economy will continue to outperform the potential growth rate, pegged at around 1%, until the three months ending September 2019, right before the planned national sales tax hike to 10% in October of that year.

"Exports, capital expenditures and other growth led by the corporate sector will continue," said Taro Saito at NLI Research Institute. If the spring labor talks currently underway result in significant pay raises, there will be real hope that consumption will chart a substantial upswing.

The rosy outlook for the Japanese economy is also being predicted in the context of the international landscape. The global economy this year is due to climb by 3.9%, the International Monetary Fund estimated in a report published in January. That represents a 0.2-point upgrade from last October's estimate.

The massive tax cut passed by Washington is expected to boost the U.S. economy, and the benefits are seen spilling over to Japan and other trading partners.

Japan's economy has entered the sixth year of sustained recovery as of December 2017, but the run of growth is likely to hit some bumps this year. One is the impact of the record freezing temperatures enveloping parts of the country in recent weeks. The cold snap is denting consumer spending in areas such as leisure.    

Prices of vegetables are also climbing. These two factors could weigh down on consumption during the first quarter of 2018.

Then there are the roiling financial markets. The threat of big market swings affecting the economy on both the psychological and practical fronts cannot be ruled out.  

At this stage, private economists believe the national economy will prove resilient against the twin pressures posed by consumption and the financial markets. The Nikkei Stock Average tumbled about 3,000 points after topping the 24,000-point threshold in late January. But such fluctuations are just temporary, said James Malcolm at UBS, echoing many other analysts.

"If stock prices are at the current levels, there won't be any downward pressure on the economy due to the negative wealth effect," said Yoshiki Shinke at the Dai-ichi Life Research Institute.

At the moment, the yen has appreciated to a level beyond what major Japanese corporations have assumed for the second half of the current fiscal year. That dynamic raises concerns that yen earnings will shrink at offshore operations. But analysts still predict the expanding global economy can absorb the negative effects of the strong yen if the Japanese currency maintains its present level.

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