Japan surprises St with 3.7% Q4 growth against 0.6% in US

TOKYO: Japan's economy grew at double the expected rate in the last quarter of 2007, but a possible slowdown this year means analysts still see the Bank of Japan keeping interest rates on hold in 2008, or even cutting them. Germany's economic growth slowed as expected in the same period, with a fall in consumption offset by strong gains in equipment investment and net trade.

Investors are now focusing on GDP data from fellow euro zone powerhouse France later in the day for clues on how the global credit crisis since the middle of last year has affected growth around the world.

The Japanese economy grew at an annual clip of 3.7% in the last quarter, far above the meagre 0.6% recorded in the United States in the same period, suggesting the two economies may have decoupled to some extent at the end of last year. Economists said Japan's strong growth might be a last hurrah before a downturn in 2008 given mounting concerns over the fate of the US economy.

���If Japanese industrial production falls as expected in January-February, the Japanese economy will surely fall into a recession,��� said Naoki Murakami, economist at Goldman Sachs.

The data follows a pessimistic outlook from financial chiefs in the Group of Seven industrialised countries when they met in Tokyo on Saturday, amid fears of a recession in the United States in the wake of the credit crisis.
Investors expect the BOJ to leave interest rates unchanged at 0.5 percent at its policy review ending on Friday, when it is expected to assess slowing US growth and the fallout from the deepening credit crisis.
Australian data out earlier showed that the jobless rate there dropped to a 3-year low of 4.1% in January, raising expectations for a rate hike by the Reserve Bank of Australia.

Strong capital spending and exports helped drive Japan's quarterly growth to 0.9% in October-December, compared with a forecast 0.4 percent rise, the government data showed on Thursday.

The headline figure marked a pickup from the weak 0.3% expansion registered in the July-September quarter.
Some economists said that fears of a Japanese recession were overblown and that the data showed the economy's resilience in the face of the global credit crisis and a domestic housing slump unrelated to the US subprime mortgage market mess.
���Today's data showed the Japanese economy grew even as the US economy slowed down,��� said Mitsuru Saito, chief economist at Tokai Tokyo Securities. ���The US economy may stagnate this year but that is unlikely to have much additional impact on Japan.��� The GDP data showed net exports contributed 0.4 percentage point of the 0.9% growth.

Japanese exports have so far held steady despite the slowdown in the US economy from late last year, thanks to strong demand from elsewhere in Asia and other emerging economies.

Japanese government bond futures fell nearly half a point on the upbeat growth figures, while the benchmark Nikkei share average rose more than 4%. But financial markets are still flirting with the idea of a BOJ rate cut.
Swap contracts on the overnight call rate are pricing in about a 30% chance of an easing later this year, down from about 40% before the GDP data came out Germany's economy grew 0.3% in the final three months of last year, slowing down from a 0.7% expansion in the previous quarter.

French figures due at 0745 GMT are expected to show economic growth there slowed to 0.4% from 0.8% in the July-September quarter. At 1500 GMT, US Federal Reserve Chairman Ben Bernanke and US Treasury Secretary Henry Paulson will testify before the US Senate Banking Committee.