Japan seen in mild recession, recovery expected in Q1

TOKYO Fri Nov 16, 2012 5:16am EST

TOKYO (Reuters) - Japan's export-reliant economy is probably in recession due to faltering global demand and a diplomatic row with China, but a recovery is likely in the first quarter of next year, a Reuters poll showed.

The survey of 25 economists, taken November 12-15, showed a downward revision of forecasts following data that revealed the world's No. 3 economy shrank in the third quarter.

Of the 20 economists who answered the question, 18 said Japan was already in recession, defined as two consecutive quarters of contraction, with most believing the country entered recession in the first half of 2012.

The analysts expected Japan to return to moderate growth next year so long as the global economy rebounds, with growth of 0.4 percent forecast for the first quarter of 2013, unchanged from the forecast given by last month's survey.

"We expect the economy will escape from a 'technical recession' and will pick up in January-March next year helped by economic recovery in the United States and China," said Kyohei Morita, chief economist at Barclays Securities Japan.

For the current quarter, the poll forecast GDP would shrink by 0.1 percent, instead of the 0.1 percent growth projected in last month's poll.

Analysts now expect the economy to expand 0.8 percent for the fiscal year to March next year, the lowest fiscal year forecast in the series polled, revised down from 1.7 percent in the previous survey. Growth in the 2013/14 fiscal year was forecast at 1.3 percent, revised down from 1.4 pct.

A row with China, Japan's biggest trading partner, over the sovereignty of some islands in the East China Sea sparked violent protests in China and the boycott of Japanese goods.

A separate Reuters poll showed nearly half of the Japanese firms surveyed are unsure how the change in China's leadership would affect tensions between Asia's two biggest economies, forcing exporters to find other markets to pick up the slack.

Another Reuters poll suggested that United States will avoid running off a so-called "fiscal cliff" that could plunge the world's largest economy into recession.

WHEN DID IT START?

Seven economists said Japan entered into a recession probably in April-June, five said in the first quarter and three said July-September.

Robust private consumption and spending for reconstruction helped Japan to recover from damage caused by last year's earthquake and tsunami with subsequent nuclear crisis.

But, with the economic affect now fading, the government acknowledged this month that its index of leading indicators fell to a level suggesting the onset of a recession.

The poll showed Japan's consumer prices were expected to fall 0.1 percent in the current fiscal year and rise a 0.1 percent the next year starting from April. The expectations were unchanged from last month's poll.

Japan's government also cut its view of the economy for a fourth straight month in November on Friday, marking the longest such sequence since the 2008-09 financial crisis.

POLITICAL FLUX

Parliament's lower house was dissolved on Friday for an early election on December 16, and politics could add to the uncertain economic outlook if there is any delay in important government spending plans, analysts said.

The opposition Liberal Democratic Party (LDP), the long dominant force in Japanese politics, is expected to recapture power.<ID:L3E8MG02D> The yen weakened to a six-and-a-half month low to near 81.50 yen against the dollar on Thursday on expectations an LDP-led government would put pressure on the Bank of Japan to ease further. <FRX/>

With a slew of weak economic indicators and prolonged deflation, the central bank is expected to take additional easing steps within this year as a strong yen and weak global demand threatened the economy, analysts said.

But while the central bank is expected to hold fire on loosening policy next week, it may also defy market expectations for action in December, pushing back any further monetary stimulus until early next year in order to size up the policies of a new government, sources told Reuters.

(For poll data click on)

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