BoJ upgrades economic prospects- Export hopes fuel upbeat tone/Japan’s economy shrinks record 4% - Green shoots persist despite GDP slump

BoJ upgrades economic prospects- Export hopes fuel upbeat tone
By Mure Dickie in Tokyo
Copyright The Financial Times Limited 2009
Published: May 22 2009 12:36 | Last updated: May 22 2009 16:24
http://www.ft.com/cms/s/0/9a62e50a-46c4-11de-923e-00144feabdc0.html


The Bank of Japan upgraded its assessment of the world’s second largest economy for the first time in nearly three years on Friday, saying exports and production were beginning to bottom out and the effects of state stimulus spending should soon begin to kick in.

“The deterioration in economic conditions is likely to moderate gradually, leading to a levelling out of the economy,” the central bank said in a statement following a meeting of its policy board.

The cautious upgrading of the BoJ’s previously gloomy prognostications underscores growing hopes that the worst of Japan’s recession may now be over.

It follows the release earlier this week of gross domestic product data that showed the world’s second-largest economy contracted at a record 4 per cent quarter-on-quarter rate in the first three months of this year. The fall followed an almost disastrous 3.8 per cent decline in October to December last year.

In a bittersweet reflection of the social impact of the slump, Dai-ichi Mutual Life Insurance on Friday announced that a poem referring to layoffs won second place in a competition for aficionados of traditional 17-syllable Senryu verse. Freely translated, the poem reads: “Long time no see; a reunion – at the job centre”.

Despite growing unemployment many analysts believe Japanese GDP is already growing again following a stabilisation of exports and the clearing of inventories by companies that cut output drastically in recent months.

“I think all the signs are that January-February was the bottom,” said Richard Jerram, economist at Macquarie Research in Tokyo, saying industrial production would soon be seen “ramping up fast”.

Still, the BoJ cautioned that any revival was still subject to “high downside risks” and that domestic private demand was likely to “continue to weaken”, though the fall would be offset by stabilising exports, industrial output and public investment.

The bank acknowledged that consumer price inflation would likely turn negative, a reference to Japan’s widely expected return to the deflation that dogged it earlier this decade.

The central bank did underline greater confidence on corporate access to credit – a focus of government and BoJ policy since the end of last year – saying there had been “some easing of tension” on financial conditions.

However, in a sign that it was not taking credit conditions for granted, it also announced it would further widen the range of collateral it accepts from banks to include US, German, UK and French sovereign bonds.

Sentiment on the Japanese economy has improved markedly in recent weeks, helped by indications that global conditions are improving and by domestic government action to boost the economy.

The administration of Taro Aso, Japanese prime minister, is putting in place stimulus measures totalling an estimated 5 per cent of GDP, with some measures already in place and the latest Y15,400bn stimulus package now wending its way through parliament.








Japan’s economy shrinks record 4% - Green shoots persist despite GDP slump
By Mure Dickie in Tokyo
Copyright The Financial Times Limited 2009
Published: May 20 2009 02:25 | Last updated: May 20 2009 04:11
http://www.ft.com/cms/s/0/c98f367e-44dc-11de-82d6-00144feabdc0.html


Japan’s economy contracted by a record 4 per cent quarter-on-quarter in the first three months of this year as domestic demand declined and an export rout continued, official data showed on Wednesday.

The decline in gross domestic product – equivalent to a extraordinary 15.2 per cent fall on an annualised basis – highlighted the woes facing the world’s second largest economy, which has now contracted for a record four quarters in a row.

However, with government spending growing, inventories falling and exports expected to stabilise after falling a record 26 per cent between January and March, many analysts believe that the worst is over and the economy may already have returned to growth in the current quarter.

Drastic production cuts by Japanese manufacturers have finally succeeded in outpacing the collapse in demand, Wednesday’s data showed, with destocking of inventories contributing a negative 0.3 percentage points to GDP growth in the first quarter.

While such inventory reduction made the headline GDP figure look even worse, it means that companies are making progress in clearing their decks and should soon be able to increase production to meet actual demand.

Manufacturers may be through the worst of the slump, but worries about job security are set to continue to suppress private consumption, which fell 1.1 per cent in the first quarter compared with the previous three months. Private investment tumbled, with capital expenditure down 10.4 per cent quarter-on-quarter.

Policymakers can take some comfort in the relative stability of Japan’s financial system and its apparent success in averting a credit crunch that would add to the troubles of the business sector.

However, the scale of the current slump is undeniable – the worst since the current data series began in the 1950s and easily exceeding even the worst declines caused by the 1970s oil shocks – and Japan’s prospects for medium and long-term recovery remain unclear.

Few economists expect any return to strong growth in the short term, with unemployment set to rise, deflation looming and structural challenges remaining unaddressed, including a huge fiscal debt overhang and a rapidly ageing population.

In a reflection of domestic weakness, many assume that sustained revival depends on a return of external demand for Japanese goods.

Asked before the release of Wednesday’s data how robust Japan's recovery would be, Kyohei Morita, chief economist at Barclays Capital in Tokyo replied: "That's the same thing as asking how robust the Chinese or US recoveries are going to be."

The data had little effect on Japanese stocks, with the benchmark Nikkei 225 average ending the day 0.6 per cent higher at 9,344.64 while the broader Topix gained 0.7 per cent to 886.30.