Global woes seen slamming brakes on Japanese economy
TOKYO (Reuters) - Economists have slashed their forecasts for Japanese economic growth as the global credit crisis takes its toll but see the Bank of Japan (BOJ) leaving interest rates unchanged, a Reuters poll showed.
The quarterly poll of more than 30 analysts painted a much bleaker picture than a similar survey conducted early last month, before the collapse of investment bank Lehman Brothers shattered confidence in the world's financial system.
The poll, conducted October 8-15, produced a median forecast of 0.3 percent economic growth in the Japanese fiscal year to next March, and 1.1 percent expansion in the year to March 2010.
That compared with growth of 0.6 percent and 1.2 percent forecast respectively in the previous survey, well below average annual growth of around 2.0 percent from 2003/04 to 2007/08 when Japan was in its longest postwar growth cycle.
"A sense of crisis deepened drastically over the past month," said Junko Nishioka, an economist at RBS Securities Japan.
"As tumbling stock markets hit Japanese households and banks with massive stockholdings, the real economy cannot remain unscathed from the global financial crisis."
With Japan facing slack consumer spending and a slowdown in exports, all 25 economists who responded to a supplementary question said the world's No. 2 economy was back in recession and a majority said it would take one to two years for it to emerge from the downturn.
Slowing exports and the high import cost of oil saw Japan report its first effective trade deficit in 26 years in August, while high costs and sluggish shipments squeezed corporate profits and were a brake on Japanese business expenditures.
In the near term, Japan's economy is expected to show no growth in the third quarter and expand by just 0.1 percent in the final three months of 2008, according to median forecasts.
The previous survey had shown the economy was expected to grow 0.1 percent and 0.2 percent respectively in each quarter.
While many expect the central bank to wait at least until 2010 to raise interest rates from their current 0.5 percent, several analysts say the BOJ will need to cut rates to prevent the economy from sliding further.
That was a contrast with the previous survey, which had forecast a BOJ rate hike to 0.75 percent in the final quarter of 2009.
"The export environment is really bad," said Seiji Adachi, a senior economist at Deutsche Securities. Adachi and some others expect the BOJ to cut rates by 25 basis points by next March.
"If the BOJ sticks to the current policy rate, it would put upward pressure on the yen, which is bad news for Japanese exporters and its export-reliant economy," he said.
The BOJ has kept rates on hold since February 2007. It did not join other major central banks in cutting rates earlier this month and said Japanese monetary conditions were already easy with rates at a very low level. Continued...
