Gross domestic product increased at an annualized 5.6 percent in the three months ended Sept. 30, the Cabinet Office said in Tokyo today, compared with a preliminary figure of 6 percent. The median forecast of 19 economists surveyed by Bloomberg News was for an increase of 5.2 percent.

Japan’s economic recovery after two straight quarters of contraction and a record earthquake in March is threatened by a global slowdown and a yen rate staying near post-World War II highs against the dollar. Prime Minister Yoshihiko Noda ordered a fourth extra budget last week to shore up demand in the world’s third-largest economy.

“Every sector is working and growing somewhat, but not up to potential,” said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo. Sluggish recoveries in the housing market and exports “point to a much slower year next year,” he said.

The yen traded at 77.70 per dollar as of 10:39 a.m. in Tokyo compared with its postwar record of 75.35. The Nikkei 225 Stock Average fell 1.5 percent after the European Central Bank damped speculation it would step up debt purchases.

Corporate capital spending fell 0.4 percent from the second quarter, compared with the initial reading of a 1.1 percent increase, today’s report showed. Private consumption was revised down to show a gain of 0.7 percent from 1 percent, according to the data.

Manufacturers Pessimistic

Japan’s large manufacturers turned pessimistic in the fourth quarter, a separate government report showed today. Sentiment among those companies was minus 6.1 compared with plus 10.3 three months earlier. A number below zero means pessimists outnumber optimists.

The government revised historical GDP figures to show that the economy expanded at a 0.1 percent annualized rate in the final quarter of 2010, compared with its previous reading of a contraction.

The yen’s strength is prompting companies to consider shifting production overseas. Nissan Motor (7201) Co. Chief Executive Officer Carlos Ghosn said last week that the lack of returns in Japan will lead the nation’s second-largest automaker to gradually move output abroad.

Finance Minister Jun Azumi said last week that he would take action against speculative moves on foreign exchange markets, an indication the government may intervene again to protect exporters.

‘Currency Uncertainty’

“At a time when corporations are looking to make plans for the following fiscal year, this currency uncertainty is definitely not helping,” Cameron Umetsu, senior economist at UBS Securities Japan Ltd. in Tokyo, said before the report. Next year “the only safe bet is that reconstruction will provide support, and the hope is that the U.S. and Chinese economies can remain resilient.”

The Japanese government ratified a third supplementary budget totaling 12.1 trillion yen last month to support rebuilding from the March 11 disaster. Noda ordered a fourth extra budget last week that is likely to be worth around 2 trillion yen.

Japanese companies reduced capital spending by 9.8 percent from a year earlier in the three months ended September 30, the second quarter of reduction, according to a Finance Ministry report Dec. 2.

Exports Fall

Machinery orders, an indicator of future capital outlays, decreased 6.9 percent in October from the previous month, the Cabinet Ministry said in a report yesterday. Exports declined 3.7 percent from a year earlier in October, government data showed Nov. 21.

Bank of Japan (8301) Governor Masaaki Shirakawa said last month that the European debt crisis is the biggest threat to Japan. ECB President Mario Draghi said yesterday that the central bank’s bond purchase program is “neither eternal nor infinite.”

Almost half of respondents to the quarterly Bloomberg Global Poll say one or more countries will leave the 17-nation euro zone within a year. European policy makers are meeting in Brussels to consider tougher budget rules after Standard & Poor’s said Dec. 5 it is considering downgrading 15 nations in the bloc.

To contact the reporters on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

http://www.bloomberg.com/news/2011-12-09/japan-s-economy-expands-less-than-initial-estimate-as-investment-declines.html

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