Outbound shipments rose 7.9 percent from a year earlier, less than the 11.8 percent median forecast in a Bloomberg News survey of 27 analysts. The deficit of 520.3 billion yen ($6.5 billion) exceeded a 84.5 billion yen shortfall in March, the finance ministry said in Tokyo today.
Constraints on exports show the challenge for the government of sustaining growth without worsening the nation’s finances as a boost from earthquake rebuilding fades. Finance Minister Jun Azumi called today for the Bank of Japan to “take appropriate steps in a timely manner” and Citigroup Global Markets Japan Inc. said the central bank may boost asset purchases in coming months after holding off today.
“If exports stay flat when the effect of the post-quake reconstruction is likely to peak out in the latter half of the year, there’s a possibility Japan’s economy will fall into a lull,” said Kiichi Murashima, an economist at the Citigroup unit said in Tokyo. “There’s a chance for a further monetary easing in July.”
The yen traded at 79.44 per dollar as of 17:02 p.m. in Tokyo, up 0.7 percent after weakening 0.8 percent yesterday. That compares with a post-World War II high of 75.35 in October. The MSCI Asia Pacific Index fell 1.6 percent on Japan’s data and concern that Greece is at risk of exiting the euro region as Europe’s crisis persists.
The central bank left the asset fund at 40 trillion yen ($501 billion) and a credit-lending program at 30 trillion yen. All 14 economists surveyed by Bloomberg News forecast that outcome. The policy board kept the key overnight lending rate between zero and 0.1 percent.
“Calls for more monetary stimulus won’t stop as politicians want to end deflation before raising the sales tax,” Daiju Aoki , a Tokyo-based economist at UBS AG, said before the monetary policy decision. “The BOJ won’t really be able to take a breather this year.”
The sovereign-rating cut escalated pressure on lawmakers to double the sales tax to boost revenue, with the Organization for Economic Cooperation and Development warning yesterday that the nation’s debt is heading into “uncharted territory.” Fitch said that Japan’s “fiscal consolidation plan looks leisurely relative even to other fiscally-challenged high-income countries, and implementation is subject to political risk.”
If the consumption tax bill does not get through the Diet by the summer, “we would likely view that negatively,” Andrew Colquhoun, head of Asia-Pacific Sovereigns at Fitch, said on a conference call with reporters. Even if the levy was raised, “we still see longer term negative pressure on the ratings.”
The local-currency rating was reduced one step, and foreign-currency grade two levels, to A+, the fifth-highest ranking, Fitch said in a statement yesterday.
A surge in demand for Japanese government bonds that sent 10-year yields to the lowest level since 2003 this month is masking the risks from rising debt. Prime Minister Yoshihiko Noda has failed to persuade opposition lawmakers to support his legislation, leaving gross public debt poised to reach 223 percent of gross domestic product next year, the OECD said.
“It’s an alarm bell for Japanese politics and the slow progress in Japan’s fiscal consolidation,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo and a former central bank official. “There’s no commitment to fiscal consolidation -- in the long run, Japan’s creditworthiness and fiscal sustainability aren’t looking good.”
Elsewhere in Asia, China International Capital Corp said that a Greek exit from the euro could drag down China’s economic growth to 6.4 percent this year by weakening the global expansion. That would be the least since 1990, according to data compiled by Bloomberg.
The China Securities Journal reported today that an interest-rate cut in China can’t be ruled out if data for May shows growth is slowing further. It cited unidentified people.
Malaysia and Singapore are due to release inflation figures today and Taiwan gives details of industrial output. In the U.K, the Bank of England will release the minutes of the most recent monetary policy meeting held on May 9-10 after halting a bond-purchase program at 325 billion pounds ($512 billion) this month.
U.K. Central Bank
The central bank needs to inject more stimulus into the economy through more bond purchases or by cutting interest rates as “large” risks from the euro-area crisis may derail growth and inflationary pressures remain weak, the International Monetary Fund said yesterday.
The U.K. will give retail sales figures, Italy will report consumer confidence, Sweden releases jobless data and the latest reading on new-home sales is due in the U.S. today.
In cutting Japan’s rating Fitch went one step further than Moody’s Investors Service and Standard & Poor’s, which both have Japan on their fourth-highest rankings. Fitch and S&P both have a negative outlook for the nation’s grade.
Raising the 5 percent sales tax is a “top priority” and balancing the budget and reducing the public debt burden are “essential,” the OECD said in a report yesterday. Delays in restoring the fiscal health of the world’s third-largest economy could risk a run-up in government borrowing costs, it said.
So far, Japan’s worsening credit score hasn’t led to a drop in bond prices, with yields on benchmark 10-year debt falling to 0.815 percent on May 18, the lowest since 2003.
Turmoil in Europe has boosted the appeal of Japanese assets as a so-called haven for investors and the nation remains the world’s largest net creditor. Japan’s foreign investments and assets grew to the second-highest level on record in 2011, Finance Ministry data showed yesterday.
“Very strong private sector savings in Japan” help support the sovereign rating, Andrew Colquhoun said in an interview with Bloomberg Television in Hong Kong today. Private- sector demand for Japanese government bonds won’t change soon, he said.
Yields “are being kept low by extremely loose monetary policy and safe haven demand,” said David Rea, an economist at London-based Capital Economics. “Japan is not Greece and is unlikely to share a similar fate,” he said, adding that it has “its own currency, independent monetary policy, a relatively strong economy and ample external assets.”
Moody’s cut the nation one step to Aa3 in August last year, citing the build-up in government debt since the 2009 global recession. S&P lowered Japan to AA- in January last year and said the outlook was “negative” three months later. No comment was immediately available from those companies yesterday.
Japan’s economy grew more than expected in the first quarter as private consumption rose and reconstruction spending boosted public investment. Gross domestic product rose an annualized 4.1 percent from the final three months of 2011, a Cabinet Office report showed May 17.
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