Japan predicts record fall in output

Japan predicts record fall in output
By Michiyo Nakamoto in Tokyo
Copyright The Financial Times Limited 2009
Published: April 27 2009 05:30 | Last updated: April 27 2009 19:24
http://www.ft.com/cms/s/0/c4342f9c-32e2-11de-8116-00144feabdc0.html


Japan’s government yesterday tore up its latest growth forecasts and instead predicted a record drop in output this year as it sought backing from the Diet for a fresh fiscal stimulus to revive the battered economy.

Tokyo said it expected gross domestic product to fall 3.3 per cent in the fiscal year that began on April 1 and warned that the economic picture was worsening. The government in December forecast flat growth for the current fiscal year.

“The Japanese economy is continuing to deteriorate rapidly,” Kaoru Yosano, finance and economics minister, told parliament. “Our country is clearly in a situation that can be described as an economic crisis.”

The downgrade in the government’s 2009-10 forecast came in spite of a new fiscal stimulus package, which the cabinet office projects will raise output by 1.9 per cent. The package forms the largest part of the Y14,700bn ($152bn) supplementary budget.

The government, which estimated that the economy contracted by 3.1 per cent in the year that ended March 31, yesterday submitted bills that included tax breaks to encourage housing investment and a Y50,000bn emergency scheme to invest public money in the stock market.

In spite of the worsening plight of the world’s second largest economy, the government’s efforts have boosted the popularity of Taro Aso, prime minister. Mr Aso’s approval rating fell to single digits earlier this year but a poll by the Nikkei business daily, published yesterday, found his rating had risen 7 percentage points from March to 32 per cent.

Setting out its revised GDP forecast, the government said it expected exports to fall 27.6 per cent this year and industrial production to decline 23.4 per cent. It had earlier predicted declines of 3.2 per cent and 4.8 per cent in exports and production, respectively.

Some independent economists are gloomier than the government. Tetsufumi Yamakawa, chief economist at Goldman Sachs in Tokyo, predicted a 5.3 per cent contraction in output this year.

The Bank of Japan was likely to downgrade its forecast for the next two years when it published its semi-annual outlook report for the economy on Thursday, analysts said. The central bank previously forecast a contraction of 2 per cent for this year, but Richard Jerram, chief economist at Macquarie Securities in Tokyo, said he expected the bank to revise that to a 4 per cent fall in output.

However, economists also voiced tentative optimism that the pace of the economy’s decline might have eased from the last quarter, when output was likely to have suffered a double-digit decline, suggesting Japan could be past the worst.

“It’s reasonably clear that the January to March quarter was the trough of the cycle and the question is not the direction of the economy but the speed of recovery,” Mr Jerram said.

Japan is set to benefit from the fiscal stimulus measures being implemented not just at home but in China and other key export markets.

Julian Jessop at Capital Economics said: “The recent stabilisation in the monthly economic data . . . bodes well for the prospects of an early recovery.

“Even the smallest bounce in exports from here [say, 5 per cent] would be enough to see net trade make a positive contribution to growth,” he said.