(For more stories on the Japanese economy, click [ID:nECONJP])
(Adds forecasts for Q1 contraction)
By Yuzo Saeki
TOKYO Feb 16 Japan's economy shrank in the last
quarter at its fastest rate since the first oil crisis in 1974,
hit by an unprecedented slump in exports, and economists warned
there was little sign of any improvement for now.
Japan's heavy dependence on exports and persistently soft
domestic consumption has led to a sharper contraction than other
major economies, despite it escaping much direct fall out from
U.S. credit woes.
Group of Seven (G7) policymakers pledged at the weekend to do
all they could to combat recession while in Japan there is
growing debate about how much the heavily indebted government can
do to stimulate the economy. [ID:nLE523133]
Japan's economy shrank 3.3 percent, or an annual rate of 12.7
percent in the fourth quarter of 2008 -- three times the fall in
gross domestic product in the same quarter in the United States,
at the epicentre of the global crisis. [ID:nN29308953]
With exporters cutting production and laying off staff and
many retailers reporting sharp falls in sales, economists saw
little hope of a bounce back for Japan.
Four out of six economists quizzed by Reuters forecast a
further slide of around 10 percent in the current January-March
quarter with another one forecasting an even deeper fall.
"The data showed a severe picture of the Japanese economy and
highlighted the weakness in exports," said Takeshi Minami, chief
economist at Norinchukin Research Institute.
"The January-March quarter is likely to show another minus
figure (annualised) in double digits or something close to double
Spooked by sliding U.S Treasuries and reports that the
heavily indebted Japanese government may be planning further big
stimulus spending, March 10-year government bond futures 2JGBv1
fell a third of a point. FINEWS [JP/]
"There's no question that this is the worst recession in the
post-war period," Economics Minister Kaoru Yosano told a news
The government had to pursue all options to keep the economy
afloat, he said, but he struck a cautious note on large scale
spending, saying it could not get "addicted to pain killers".
The Nikkei share average .N225 dipped 0.1 percent but the
yen JPY= rose slightly, after the G7 omitted any reference to
the currency's strength in its final communique. FXNEWS [FRX/]
The yen's 24 percent rise against Japan's key trading
partners in the quarter has added to the pain for big exporters
such as Toyota (7203.T) and Panasonic (6752.T). [ID:nN13360802]
The big slide in Japanese GDP in the October-December quarter
was its second-worst in modern times, lagging only a 3.4 percent
contraction in 1974, after the first Middle East oil shock.
The contraction was bigger than economists' median forecast
of a 3.1 percent fall and also worse than the downturn ensnaring
all other major economic powers in the same quarter.
The eurozone GDP shrank 1.5 percent, its deepest contraction
on record, while the United States economy shrank just under 1
percent in the quarter (an annual rate of 3.8 percent).
For a comparative graphic, double click:
A plunge in exports was the main culprit behind the massive
Japanese contraction. External demand slashed GDP by 3.0
percentage points in the quarter.
The subsequent build-up in inventories of unsold cars,
flat-screen TVs and many other goods has forced Japanese
manufacturers to halt factory lines, pushing industrial
production off a cliff.
"Given a rise in inventory and a decline in final demand,
output adjustments will continue in January-March, paving the way
for another big contraction in the first quarter," said Tatsushi
Shikano, senior economist at Mitsubishi UFJ Securities.
"As the U.S. stimulus package will have its effect on
Japanese exports, Japan's economy may start picking up from
April-June onwards, but it will be a very weak recovery amid a
lingering recession. The economy can't avoid a second straight
year of contraction in the fiscal year starting in April."
The sharp deterioration has prompted big exporters to cut
jobs and threatened their small suppliers, sending company
bankruptcies sky-rocketing and raising worries that the country's
already fragile consumption could sputter even more.
The government, deeply unpopular with voters and facing an
election this year, has so far set out two stimulus packages, and
Japanese media said ruling parties were eyeing a third one that
could include up to 30 trillion yen ($327 billion) in fiscal
However, with parts of the previous packages stuck in Japan's
deeply fractious parliament and with Prime Minister Taro Aso's
popularity in deep decline, doubts are growing over how long he
can survive. [ID:nT53753]
The economy minister also said he was wary about the push
from the main ruling party, the Liberal Democrats, to spend more.
"The party may have a plan for additional spending worth 30
trillion yen... but we can't think of good ways to spend that
much", Yosano said.
Wary of mounting problems for Japan's economy, the BOJ has
nudged interest rates down near zero, taken some unconventional
steps including buying of commercial paper, and set up a new
funding scheme using corporate debt as collateral.
The BOJ, which meets again this week, said last month it
expected the economy to contract this fiscal year and in the year
from April as consumer prices fall for two years.
(Additional reporting by Hideyuki Sano, Tetsushi Kajimoto,
Masayuki Kitano, Editing by Rodney Joyce)