Japan GDP Expands 4.9%; Stocks Weaken

Mayank Mehta, Chandrasekhar Atreya and Darlington Musarurwa
20 May, 2010
New York City

The gross domestic product of Japan expanded at 4.9% rate in the first quarter. Resona Holdings plans to buy back the government stake. Large firms to increase bonuses for the first time in two years.

[R]5:00 AM New York, 7:00 PM Tokyo – The gross domestic product of Japan expanded at 4.9% rate in the first quarter. Resona Holdings plans to buy back the government stake. Large firms to increase bonuses for the first time in two years.[/R]

Stocks in Japan slipped dragging the Topix index to longest losing streak in six months after deflation concerns increased and a report showed the economy grew less than estimated. However, the economy gained for the fourth straight quarter.

The Nikkei 225 stock average dipped below 10000 for the first time since February and closed 1.5% below at 10030.31 today.

The government reported before the market opening that the nation’s GDP grew at a 4.9% annual pace in the quarter ending in March, lower than what most economists had estimated growth of 5.5%. Within minutes of the release, Finance Minister Naoto Kan warned that the economy continues to be in a deflationary mode.

We expect the Bank of Japan, which is planning measures to encourage banks to lend more, to support an economy that’s not yet in a self-sustained recovery mode, said Naoto Kan in Tokyo today.

Morgan Stanley Capital Group Japan Co expects to double its commodities business in Japan within two years as the market has growth potential with the commodities sector lagging behind Europe and America, given the size of the economy, said Hisaki Endo, representative director of the company in an interview on May 17.

Investment in factories that make battery parts and smart grid equipment will increase to 100 billion yen by the year ending March 2018, including the 50 billion yen announced earlier, in an effort to energize the company’s decade-long dwindling sales, said NEC Corp President Nobuhiro Endo in an interview at the headquarters of the company in Tokyo yesterday.

Chairman Eiji Hosoya, of Resona Holdings Inc, the nation’s fourth-largest bank, is seeking to reduce the government’s stake in the form of convertible preference shares by offering to buy them, easing investor’s dilution concern.

The bank is in the process of submitting a four year business plan to the regulators and so desires to reduce the stake of the government in the bank.

Exporters dropped as the yen rose to 91 against the dollar and strengthened to 112 against the euro.

In Tokyo trading Nikkei 225 Stock Average dropped 1.5% or 156.53 to 10,030.31, and the broader Topix Index fell 1.4% to 898.15.

In the first section of the Tokyo Stock Exchange 9 billion shares worth 616 billion yen were traded and in the second section 120 million shares valued at 1.5 billion yen changed hands.

Of the Nikkei 225 index stocks, 30 rose, 190 fell, and 5 were unchanged. NSK JHD led gainers in the index shares with a rise of 2.7% followed by T&D Holdings advancing 2.7%.

GDP Expands 4.9%

Cabinet Office reported today that the country’s gross domestic product rose 4.9% in the quarter ending in March, rising for the fourth consecutive quarter.

However, economists had forecasted that the economy to expand 5.5%.

Domestic demand edged up 0.6% in the period, while private demand gained 0.7% and private and household consumption both rose 0.3%.

The report also notes that private residential investment climbed 0.3% and private non-residential investment advanced 1%.

In the January to March period, exports increased to 6.9% from a quarter earlier and imports gained 2.3%.

Government consumption jumped 0.5% and public investment fell 1.7%.

Big Firms to Hike Summer Bonuses

Japan’s Business Federation said in a preliminary survey yesterday that bonuses to be paid by major Japanese companies this summer will rise 1.5% to 790,468 yen from a year ago, marking the first rise in two years.

The report notes that in value the average amount of summer bonuses is considerably smaller than the high of 938,555 yen in 2007.

Nikkei 225 Stock Average

NSK JHD led gainers in the Nikkei 225 index stocks with a rise of 2.7% followed by T&D Holdings 2.7%, Resona Holdings 2.4%, Tokio Marine 2.4%, MS & AD Insurance 1.9%.

Nippon Light Metal led decliners in the Nikkei 225 index stocks with a fall of 5.2% followed by Casio Computer 5.1%, Isuzu Motors 5%, Toshiba Corp. 4.9%, and Sumco Corp. 4.7%.

Other Movers

Exporters fell as the yen rose against both the euro and the dollar. Canon declined 2.7% to 3,285 yen and Hitachi slipped 3.4% to 370 yen.

Toshiba dropped 4.9% to 469 yen after Mitsubishi UFJ lowered its rating to “market perform” from “outperform” yesterday.

Resona Holdings jumped 2.4% to 1,098 yen after the Nikkei News reported that the lender is negotiating with the government to begin repaying 2 trillion yen in public bailout funds extended a year ago.