MercoPress. South Atlantic News Agency

Fears of US slowdown seem to be affecting Japanese economy

Japan revealed Friday that its economy grew by much less than previously thought in the third quarter of 2007 amid a housing slump and slower investment by firms in new factories and equipment.

The official downgrade added to worries that the world's second largest economy could be hurt by a slowdown in the United States and reinforced market expectations that another rise in Japan's super-low interest rates is unlikely any time soon, analysts said. Japan's gross domestic product (GDP) grew at an annualized pace of 1.5% in the three months to September, down from an initial estimate of a 2.6 percent expansion, the Cabinet Office said. Compared with the previous quarter, GDP grew by 0.4%, against a previous estimate of 0.6%, it said. Analysts said Japan should continue its slow recovery from a slump stretching back over a decade, although at a more moderate pace than previously thought. The world's second-largest economy has seen a rebound after shrinking by a revised 0.5% in the second quarter, with brisk exports to the rest of Asia helping to return growth to positive territory. But with the US subprime loan crisis casting a shadow over prospects for the global economy, Japan's exports are at risk of being hit by a slowdown in growth in its major trading partners, analysts said. Another particular area of concern is the housing sector, where activity has slumped since the introduction of stricter earthquake resistance standards. Residential investment plunged 7.9% in the third quarter, even more than the initial estimate of a 7.8% fall. With growth faltering, the Organisation for Economic Cooperation and Development, OECD, on Thursday cut its growth forecasts for Japan's economy to 1.9% in 2007 and 1.6% in 2008. Lackluster growth and lingering deflationary pressures mean that the Bank of Japan is likely to hold off on raising its key interest rate from the current 0.5% until the latter half of 2008. The central bank raised interest rates in 2006 for the first time in almost six years. It raised them again in February 2007 but has held them steady since then