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Japan's economy is expected to register another quarter of sluggish growth as cooling domestic demand and the US slowdown keep the brakes on the recovery here, analysts said.
The government is set to report Tuesday gross domestic product (GDP) growth of about 0.3 percent for the third quarter and an annualised rate of 1.2 percent, according to consensus market forecasts.
That would compare with a quarter-on-quarter expansion of 0.2 percent in the previous term, which was sharply down from 0.8 percent in the three months to March and 1.0 percent in the fourth quarter of 2005.
Analysts said a drop in consumer spending, which makes up 55 percent of the world's second-largest economy, would be the first in seven quarters and could deter the central bank from raising interest rates again this year.
"The forthcoming GDP data will probably show that exports have temporarily replaced domestic private demand as a key growth engine," NLI Research Institute senior economist Taro Saito said.
"Consumer spending fell in the past quarter due to a decline in consumer confidence amid high gasoline prices, as well as unstable weather conditions and moderate income growth," he said.
The government is expected to report this month that Japan is in the midst of its longest period of sustained growth since World War II as the world's second largest economy finally emerges from its long deflationary torpor.
Strong domestic demand has in recent quarters made up for a cooling of export growth but analysts think the balance may have shifted again thanks to robust shipments of fuel-efficient Japanese cars to the United States. However, some pessimistic economists warned that the weakness in domestic demand may have caused the economy to contract in the September quarter.
"Domestic private and public demand probably made a negative contribution to quarterly GDP, suggesting that the Japanese economy is entering a temporary lull," said Seiji Shiraishi, chief market economist at Daiwa Securities SMBC.
He thinks GDP shrank 0.4 percent quarter-on-quarter in the third quarter and by 1.6 percent on an annualised basis. Economists also cited the slowdown in capital spending by Japanese companies for the expected sluggish growth.
Data out Friday showed private-sector core machinery orders - a key leading indicator of capital spending - slumped by 7.4 percent in September.
"Due to the absence of relatively large-lot investment deals which were seen in the previous three months, growth in this area slowed down," Japan Research Institute economist Makoto Ishikawa said.
"But I would say that this is part of a natural adjustment to a more sustainable pace."
A weak growth snapshot would further dampen speculation about another rise in interest rates in Japan this year although Bank of Japan governor Toshihiko Fukui appears to have been laying the ground recently for a rate hike.
Weak consumer spending "could reduce a little bit the possibility for a rate hike before the end of this year," said Kazuhiro Oshima, economist at Mitsubishi Research Institute.
Fukui said in a recent speech that the central bank would take a "forward-looking approach" to ward off a spike in inflation that might require even more aggressive interest rate rises later.
The Bank of Japan last month kept its benchmark rate unchanged at 0.25 percent where it has been since the first rise for almost six years in July. BoJ policymakers gather for another two day meeting from Wednesday.

Copyright Agence France-Presse, 2006

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