· The second preliminary estimate of Japan's third quarter gross domestic product, which was published late last week, reduced the quarter-to-quarter growth rate from 0.4% to 0.2%.  The major revision was a change in inventory accumulation.  In the first preliminary estimate there was no change in inventories and, therefore no  contribution to growth from that source, but the second preliminary estimate showed a substantial decline in inventories resulting in 0.4 percentage points being deducted from the growth rate. The other changes were a 0.1 percentage point increase in nonresidential construction and a 0.1 percentage point reduction in the import of goods and service import which, of course, is positive in relation to growth. On a seasonally adjusted annual rate basis, Japan's GDP rose 1.0% in the third quarter, down from 5.0% in the second quarter and 5.7% in the first quarter as shown in the first chart.

· The fact that the lower estimate was due largely to a change in the estimate for inventories suggests that the deceleration in growth may not herald the specter of another false rise in Japanese growth.  There are faint positive stirrings in consumer confidence. Although the diffusion index of consumer confidence is still below 50, indicating an excess of pessimists over optimists, the index has risen in both October and November  suggesting that consumers may increase their  spending in the fourth quarter. The Economic and Social Research Institute in the Cabinet Office now publishes monthly instead of quarterly indicators of consumer confidence, but the monthly data go back only to April, 2004.  In the second chart we show the monthly data linked to the now discontinued quarterly series.  While the gains  in consumer confidence are tentative, there is little doubt that there has been a sharp decline in the yen this year as shown in the third chart.  The lower yen has and is likely to continue to encourage exports.