Asian markets slide despite strong Japanese growth

Guy Bentley
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Asian shares are taking a hit in the wake of lower profit projections from Japan's three biggest banks and forecasts from electronics giant Sony that it will continue to be unprofitable until 2015.

Investors were, however, somewhat upbeat after the prospect of the European Central Bank (ECB) undertaking monetary easing was raised.

ECB board member Yves Mersch said yesterday the central bank was preparing measures to combat low inflation.

Data showing the Japanese economy expanded at its most rapid rate in three years failed to inspire much confidence. The economy saw GDP growth of 1.5 per cent the first quarter as private consumption surged ahead of the introduction April's sales tax hike.

The rise in private consumption was fully in line with expectations but there was a surprising uptick in business investment, which rose 4.9 per cent quarter-over-quarter, with exports rising six per cent over the same period.

However, the boost seen prior to the sales tax hike is likely to be temporary, as consumers cut back on spending and residential investment declines. While the economy may decline in the second quarter some analysts warn against an overly pessimistic outlook.

"Many commentators are too negative about the experience from the last increase in the tax in 1997, which was followed by a recession a year later. But this had more to do with the Asian Financial Crisis than the tax hike itself," said Marcel Thieliant, Japan economist at Capital Economics.