Deepest Japan Slump Since Lehman Fails to Derail Predictions for Rebound
An escalation in Japan’s nuclear crisis has failed to dissuade analysts from forecasting an economic rebound starting next quarter, an outlook that hinges on a recovery in business and household confidence.
Gross domestic product may shrink 3 percent in April-to- June, the most since the aftermath of the 2008 Lehman Brothers Holdings Inc. collapse, according to the median of 18 estimates in a Bloomberg News survey in the past week. The GDP loss will be more than recouped by year-end, with 1.9 percent and 5.5 percent annual growth rates in the final two quarters, the survey shows.
Prime Minister Naoto Kan’s proposed 4 trillion yen ($48 billion) initial reconstruction package may kick-start the recovery from last month’s record earthquake. Companies from Shiseido Co. to convenience-store chain FamilyMart Co. are counting on a shift in sentiment to prompt households to open their wallets and limit the hit to corporate earnings.
“The risk here is that a prolonged consumer-spending slump trumps the boost from government spending even as reconstruction gets under way,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo, who like most analysts sees a single quarterly GDP contraction. “If consumer spending doesn’t come back, that’s going to damp the job market and we could see more contractions in consumer spending in the third quarter on.”
Severity Matches Chernobyl
Japan’s Economic and Fiscal Policy Minister Kaoru Yosano said this week that while the quake’s damage may be “bigger than we initially expected,” a rebound will likely be in place by the year-end.
The Nikkei 225 Stock Average rose 0.1 percent to 9,653.92 at the 3 p.m. close in Tokyo. The Nikkei slid 1.7 percent on April 12 after government officials raised the severity level of the accident at Tokyo Electric Power Co.’s nuclear power plant to match the level of the 1986 Chernobyl disaster.
Vice Finance Minister Mitsuru Sakurai said today the government can’t avoid issuing more debt to finance reconstruction efforts. Makoto Iokibe, the head of a government advisory panel for rebuilding, said policy makers should consider implementing a tax to pay for the project.
“The effect of the nuclear crisis has turned out to be more severe and prolonged than we had anticipated,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “We thought the nuclear problem would calm down in the April- June period, but it doesn’t seem likely that will be the case.”
Radiation worries threaten the country’s tourism industry, Maruyama said. They could also hit domestic consumer spending as people hold off from outlays including for eating out due to food safety concerns, said Nishioka of RBS. Private consumption makes up about 60 percent of GDP.
The number of foreign visitors to Japan plunged 50 percent in March from the same month a year earlier amid safety concerns after the quake, the Japan National Tourism Organization said in a statement on its website.
Confidence among Japanese merchants fell at the fastest pace on record last month, the Economy Watchers index released last week by the government showed. The survey of barbers, taxi drivers and others who deal with consumers, slid to 27.7 in March from 48.4 in February, the biggest drop since the survey began in 2000.
Retail sales in the world’s third-largest economy may drop as much as 10 percent this year, FamilyMart Co., a Japanese convenience-store chain, said last week.
Shiseido Co., the country’s largest cosmetics maker, said yesterday the quake may have reduced its sales by 3 billion yen. A Shiseido factory that makes products including shampoo was damaged by the temblor.
In Japan’s automobile industry, while the top three carmakers are gradually increasing output after the quake, Toyota Motor Corp. told U.S. dealers that assembly disruptions may thin supplies of vehicles into the third quarter.
Japan’s government last week said it may impose legal limits to electric power consumption ahead of shortages that are likely to worsen as the summer approaches.
Meantime, Japanese businesses sought 7.5 trillion yen in loans from the nation’s three largest banks including Mitsubishi UFJ Financial Group Inc. (8306) to cope with the quake, spokesmen of the banks said.
The Bank of Japan last week established an emergency, 1 trillion yen lending facility to help affected businesses. Last month it doubled to 10 trillion yen a program to inject liquidity into markets by buying assets such as corporate debt.
Japan’s central bank may be pressured to expand stimulus in coming months as the government will likely compile a second extra budget for disaster relief, Nishioka said.
The focus will be on “whether the BOJ will expand its regular bond purchases or its purchases of bonds through the asset-purchasing fund,” she said. The BOJ would prefer those measures to buying bonds directly from the government, Nishioka said. BOJ Governor Masaaki Shirakawa has said the central bank underwriting debt may hurt trust in the yen.
The BOJ may need to provide further monetary stimulus if economic damage from the quake is prolonged, Naoyuki Shinohara, deputy managing director at the International Monetary Fund, said in an interview in Washington yesterday.
Signaling that the disaster may ease Japan’s deflationary trend, the BOJ said last week that CPI will be “slightly positive in the near future.”
Consumer prices will rise 0.5 percent in the second quarter, 0.8 percent in the third and 0.3 percent in the fourth, according to a median of nine estimates in the Bloomberg News survey.